Price increase to deal with raw material price hikes

■ Want Want reported 1H FY3/22 revenue growth of 10.5% yoy, above our expectation because of strong sales growth of dairy and beverages, and net profit growth of 7.1% yoy, in line with expectations, as higher raw material prices affected its gross margin.

■ Management expects full-year rice cracker and snack sales to be flattish yoy and dairy and beverage sales to maintain high growth.

■ We expect the raw material hike trend to continue for the rest of the year and in 1H22, putting pressure on Want Want’s 2H FY3/22F gross margin, but we expect a sales price increase and cost controls to mitigate some of the pressure.

■ Reiterate Add with an unchanged DCF-based TP of HK$8.0.