Forecast profit growth of 24% year-on-year

We expect Chinese food revenue in 2020 to be basically the same as the same period last year, slightly lower than market expectations, and full-year net profit increased by 24% year-on-year, slightly better than market expectations.

Pay attention to the main points

2H20 soda revenue is growing steadily, fruit juice and water continue to recover, according to our grass-roots research, 2H20 soda revenue year-on-year or recorded high-single-digit growth, mainly benefiting from the rapid growth of sugar-free slim can. We expect the income of 2H20 sugar-free series to increase by about 50%. Can's annual income will increase by about 50% in 2020, accounting for about 25% of cans' income, up from 20% in 2019. We are optimistic about the long-term income recovery prospects of carbonated products under the trend of non-saccharification, health, packaging miniaturization, etc., we expect 2H20 juice and water sales to be better than 1H20, but due to the epidemic affecting outbound consumption, there may still be a single-digit decline compared with the same period last year. Throughout the year, there may still be a double-digit decline in juice collection and water income. We judge that the obvious decline in water revenue compared with the same period last year is mainly due to the obvious damage to Zibing Lu sales. on the one hand, the price of Kang Shifu water is reduced to 1 yuan or causes some competitive pressure, on the other hand, some consumption scenes of 1 yuan of water, such as tour groups and hotels, are obviously affected by the epidemic. However, we expect that the income of 2 yuan of water Chunyue will perform well in 2020, with an increase of about 40%, accounting for 25% of the aquatic products category. The company's new products, such as Sunshine Lemon Tea and Costa Coffee, have a bright performance in 2020. Monster's revenue growth has slowed due to the epidemic, and we expect to achieve only median growth compared with the same period last year. The improvement of gross profit margin in the second half of the year continued the savings of superimposed costs, driving steady profit growth for the whole year.

Benefiting from the fact that the price of PET is still low, we expect the improvement trend of the company's 2H20 gross profit margin to continue. We expect the gross profit margin to further increase to about 40% in the second half of the year compared with the first half of the year. In terms of expenses, we expect the 2H20 sales expense rate to improve month-on-month, mainly because 1H20 sales expenses include one-time return disposal, sales subsidies and so on. 2H20 cost delivery efficiency has improved. Therefore, we expect the full-year net interest rate to be 3.0% higher than the same period last year.

Revenue is expected to return to double-digit growth in 2021 and is bullish on the performance of new products. We expect the company's revenue this year to benefit from increased contribution to new products and double-digit growth from a low base, among which carbonated segments such as sugar-free series .slim can.mini can are expected to maintain steady growth under the trend of upgrading consumption, while new products such as sunshine lemon tea and Costa coffee in 2020 are expected to further increase the stocking rate on the basis of 2020, maintain high growth and have the potential to develop into a single product of 100 million yuan. In terms of gross profit margin, we expect PET prices to rise in 2021 as the global epidemic alleviates. As the company's PET particles account for a large proportion of costs, we expect the company's gross profit margin to be under year-on-year pressure, and we expect the company to further improve the sales expense rate through measures such as optimizing the supply chain and improving the efficiency of digital operations, partly hedging cost pressure. The valuation with the recommended company's share price trades at 11.6 to 10.8 times the price / earnings ratio of 2021 to 22. We basically keep the profit forecast for 2020 unchanged, considering that the expense rate is improved or better than expected, raise the net profit forecast for 2021 by 4.8%, and introduce a net profit forecast of 640 million yuan for 2022. Keep the target price unchanged at HK $3.8, correspond to the price-to-earnings ratio of 15.9 pound / earnings ratio of 14.8 / 2021 / 22 and the upside of 37% of the stock price, and maintain the industry rating of outperforming.

Risk.

The price of raw materials has risen sharply, and the epidemic has been repeated.