Gradual path to recovery
- FY3/22 net loss of HK$159m in line with earlier profit warning
- Despite Omicron wave impacting the recovery in April and May, we expect Company to see a gradual sales recovery in China, while other regions continue to improve with lifting of lockdown restrictions
- We trimmed our FY23F earnings by 7.5% and introduced FY24F forecast; maintain HOLD with TP at HK$14.4
Investment Thesis
China to gradually recover. Vitasoy’s products are gradually returning to the shelves since September, with a presence in most supermarkets. Sales has been recovering on a m-o-m basis. Despite some setback from the Omicron wave in April and May, Vitasoy aims to deliver top-line growth in FY22/23
through new products (VITAOAT, VITA Sparkling and Peach Tea) and marketing campaigns.
Other markets are on a recovery path. We expect Vitasoy’s business in other core markets – Hong Kong and Australia & NZ– to see gradually improve post-COVID.
Stable cashflow to resume payout. With earnings recovery, Vitasoy is on track to see improving free cash flow which averaged HK$385m (FY19-21), led by sales recovery and lower capex commitments. Vitasoy will likely resume its dividend payout, with historical payout roughly at c.63-64%, implying 1% yield.
Valuation:
We trimmed our target price (TP) to HK$14.4 based on discounted cash flow (DCF) valuation, which implies FY23 EV/EBITDA of c.17.8x.
Where we differ:
Our earnings forecasts are more prudent than the market given our more cautious stance on margin assumptions.
Key Risks to Our View:
Resurgence of the pandemic, food industry headwinds such as rising raw material and labour costs, as well as food safety issues are some of the major risks for Vitasoy.