Price hikes to partly offset cost pressure
- Net profit growth of 1.1% in FY3/22 in line with market expectations
- Price hikes took effect from March to support topline growth ahead
- Raised FY23F earnings by 4% and introduced FY24/25 forecasts; maintain FULLY VALUED; TP at HK$6.48
Investment Thesis:
Stable growth achieved, with price hikes to materialise. We maintain a Fully Valued call, with a target price of HK$6.48/sh. Want Want China is trading at 17x FY24F PE. Want Want initiated price hikes in the mid-single digit across all three product categories, effective from March. This should support its overall topline growth. We forecast sales growth of 7%/4%/5% in FY23-25F.
Impact of higher material costs to sustain. Higher material costs will impact margins on rice crackers, dairy products and beverages and snack foods in varying degree. Gross profit margin contracted by 4.7ppts, 2.9ppts and 3.5ppts respectively in FY22. The pressure is expected to be milder in FY23F, due to price hikes.
Dividend payout. Want Want’s net cash position expanded to Rmb10bn as of Mar’22 (Mar’21: Rmb9.1bn), supported by operating cash flow of Rmb5.7bn and lower capital expenditure of Rmb450.5m.
Valuation:
We maintain FULLY VALUED, with TP at HK$6.48, based on 14.4x FY24F PE, equivalent to 10% below its 5-year trading average.
Where we differ:
Our earnings projections are largely below consensus forecast, with underlying earnings CAGR of 5% in FY22-25F
Key Risks to Our View:
Stronger than expected sales growth, new SKU launches perform better than expected; breakthrough into emerging channels.