1H2021 revenue reached a record high. In 1H2021, Dali’s revenue increased by 11.1% YoY to RMB11,287 mn. Revenue from the household consumption segment rose by 31.2% YoY to RMB1,679 mn. Sales revenue from the snack food segment increased by 0.4% YoY in 1H2021 to RMB4,860 mn. Dali’s revenue from the ready-to-drink beverage segment increased by 11.2% YoY in 1H2021 to RMB3,683 mn. The Company’s 1H2021 gross margin decreased by 1.4 ppt YoY to 38.3%, mainly due to dilution brought by the increasing proportion of short shelf-life bread products and higher raw material price. Dali’s shareholders’ profit grew by 7.3% YoY to RMB2,013 mn during 1H2021, equivalent to 49.7% of our earnings forecast for the full year of 2021.

1H2021 results were roughly in line and we fine-tune Dali's 2021-2023 revenue forecasts by -0.2%, -0.5% and -0.7%, respectively. We forecast 2021-2023 total revenue of RMB22.4 billion, RMB23.6 billion and RMB25.0 billion, representing YoY growth of 6.7%, 5.4% and 5.8%, respectively.

Considering the impact of higher raw material cost, we have decreased our 2021-2023 earnings forecast by 1.5%, 1.1% and 0.9% to RMB4.0 billion, RMB4.3 billion and RMB4.7 billion, respectively.

Maintain "Buy" and TP of HK$5.70. We expect that Dali's long-term performance will be underpinned by growth potential brought by the household consumption segment, strong cash flow, improving product mix, enhanced incentive mechanism for distributors and refined channel management. Our TP represents 16.3x/ 15.2x/ 14.0x 2021-2023 PER, respectively.