1HFY21 NP/revenue +21%/+11%, both are 2% above consensus. 2QFY21 revenuegrowth was unexpectedly better tha1QFY21 partly thanks to good receptioof newproducts, showing emerging channels could help the launch of new products.
　　Management expects 2HFY21E GPM would not be lower tha1HFY21 as milkpowder price softened. This should ease market concero2HFY21E GPM outlook.
　　The stock trades at 14.6x FY21E P/E (at low-end of 13-24x P/E range beginning fromFY16). Its 1.5x FY22E PEG is lower thaDali’s 2.0x PEG. We think its valuatioisundemanding. MaintaiBUY.
　　Revenue +11%, 2% above consensus/our est. 2QFY21 revenue growth wassurprisingly better tha1QFY21, despite channel restocking iApr & May.
　　Management attributed good 2QFY21 to three reasons: (1) good receptioof newproducts like lactobacillus beverage, beans and QQ candies; (2) canned milksales improved led by recovery of food service channel; and (3) family-size snackswere well received by consumers post epidemic.
　　GPM to stabilize i2HFY21E. GPM fell 0.7ppt to 48.2% i1HFY21 orising milkpowder and sugar prices. Givethe retreat of milk powder and sugar prices andincreasing sales mix from emerging channels (where mainly sells high-marginewproducts), management expects 2HFY21E GPM would be not less thathat i1HFY21.
　　Emerging channels to learconsumer behaviour. These channels saw rapidsales growth i1HFY21 and contributed mid-to-high single-digit sales mix. TheB2C nature cahelp the Company better understand consumer behavior andimprove accuracy ratio of launching new products (positive result was seein1HFY21). Though profit margiof emerging channels now is lower thatraditionalchannel, we think emerging channels could accelerate revenue growth andimprove GPM ilong term by successfully growing high-marginew products.
　　Lift FY21-23E NP by 1-2%. Our earnings revisiois mainly due to better-thanexpected sales. Looking into 2HFY21E, we forecast revenue to increase by 11%and NP to grow by 10%. NPM will slightly drop by 0.2ppt because the 1.3pptincrease of SG&A expenses ratio (certaiA&P spending is delayed from 1HFY21to 2HFY21E) is more thaoffset the 0.9ppt expansioof GPM to 48.2%.
　　MaintaiBuy but trimmed TP to HK$7.36. Our TP was lowered from HK$7.80to HK$7.36, based o19.0x FY21E P/E (vs 21.2x previously). The stock has derated since its removal from HSI constituent stock was announced o14 Aug.
　　Catalysts: (1) better-than-expected revenue/margins; (2) share purchase bycompany or major shareholders. Risks: (1) keecompetition; (2) food safetyissues; (3) unfavorable raw materials prices.