Vitasoy (345.HK) Profit warning unsurprising – Neutral

  • Vitasoy (345.HK) released a profit warning, expecting to post an attributable loss of HK$151-HK$172m 
  • The profit warning is not too surprising considering the sharp plunge of 95% earnings in 1HFY22. Indicative loss in 2HFY22 is translated to HK$118m-139m, similar to losses incurred of HK$123m in 2HFY21 
  • Aside from profit warning, revenue trend is in-line as China sales recovered in 2HFY22. Other markets also maintained positive growth 
  • Retain HOLD with TP at HK$18.4 

Vitasoy released a profit warning after market close today, expecting FY22 to post an attributable loss of HK$151m – HK$172m. 

The profit warning was not too surprising, considering the sharp plunge of 95% in 1HFY22 earnings.  The FY22 indication translates into a 2HFY22 loss of HK$118m – 139m, largely similar to the HK$123m loss in 2HFY21. Note that 2H is typically the low season for beverages.  

Apart from the sharp decline in China sales during the summer peak season, the lower COVID subsidies (HK$19.8m vs HK$225m in FY21) as well as non-recurring expenses and impairment costs associated with the Shenzhen plan relocation are the key reasons behind the losses.

Despite the profit warning, revenue trend looks to be in line as China sales recovered in 2HFY22, with sales decline narrowed vs the 29% drop in 1HFY22.  Revenue in other markets also maintained positive growth. 

The Company reiterated its stance that it expects to maintain recovery in sales and restore growth in FY22/23 through product innovation, advertising and promotion investments, effective go-to market execution and sales. 

While we believe the worst is likely over for Vitasoy, near term uncertainties remain especially with the recent COVID lockdowns in various parts of China, as well as heightening raw material cost pressure.  Maintain HOLD with TP at HK$18.4