<News Alert> Want Want (151.HK) 1H21 results in-line 

Key takeaways 

  • Net earnings increased 7% to Rmb2,090m, accounting for 49% of consensus estimates, in-line. 
  • Revenue rose 10.5% y-o-y to Rmb11,383m.  By segment, 
    • Rice cracker declined 5.8% y-o-y to Rmb1,876m, mainly dragged by double digit decline in overseas market sales, which is attributable to c.20% of rice-cracker sales.  While 1Q recorded sales decline due to base impact, 2Q sales resumed growth y-o-y. 
    • Dairy rose 23.5% y-o-y to Rmb6,562m, driven by surge in Hot Kid milk sales (+23.9% yoy) (>c.90% of total sales). Other beverages also registered growth of 16.4% y-o-y. 
    • Snack food declined 2.6% y-o-y to Rmb2,874m 
  • Gross profit margin contracted 1.4ppt to 46.8% on increase in certain raw material input costs and packaging costs. By segment, 
    • Rice cracker contracted 5.3ppt to 41% 
    • Dairy rose 0.7ppt to 49.4% 
    • Snack foods contracted 3.6ppt to 44.6% 
  • Operating profit margin contracted 0.2ppt to 24.4%
  • Net cash position rose to Rmb9.2bn as of Sept’21
  • Interim dividend of US0.83cents/sh (1H20:US0.65cent) was declared 
  • The Company had completed share repurchase of 150.8m worth HK$829m.  A further 26.6m shares was repurchased in Oct’21, amounting to HK$154m. Total number of issued shares has declined to 11,899.5m as of date of announcement. 
  • Due to increase in raw material cost, the Company aims to raise pricing starting Jan-1st 2022.  The Company had alerted distributors on the price change since November. 
    • Each segment will see increase in pricing. In Jan-Feb, the increase in pricing will see 70-80% rebate back to distributors, where this would have a fixed percentage commitment to be used for advertising etc. The true pricing impact should only be seen starting March 2022. 
      • Dairy beverage (90% of sales) mid-single digit 
      • Rice-cracker (80% of sales) – mid-single digit 
      • Snacks (50% of sales) – mid-single digit 
  • In 2H21, the Company is optimistic on achieving similar growth rate as 1H. In particular, the Company hopes to sustain similar growth rate for dairy sales. The Company expects to see continued margin pressure from higher input costs, which should reflect some easing into 1H22.  
  • We expect the Group should sustain stable growth ahead.  While we expect 2H should sustain double digit growth, we expect there should still be mild margin pressure from higher commodity costs. Our last rating is Fully Valued, TP at HK$4.90