According to the ICBC International Research Report, China's Feihe (06186)'s performance in the first half of 2023 was weak, in line with expectations: sales were flat in the first half of the year, but net profit fell 24.8% year on year, with 9.735 billion yuan/1,696 billion yuan respectively. In the first half of the year, gross margin fell 2.3 percentage points to 65.3%, while operating expenses as a share of sales increased by 4.0 percentage points, resulting in operating profit margin and net profit margin falling 8.3/ 5.9 percentage points respectively.
Looking ahead, competition is expected to ease in the fourth quarter: management expects to continue to face demographic headwinds this year and next, but the market's phasing out of old national standard products in August may reduce competition and promote market integration.
The bank lowered its target price to HK$4.4 due to declining revenue and profit margins. Despite the company's sales prospects facing challenges, Feihe still has high profit margins, high return on equity, and high dividend yield. Reiterate the neutral rating.