FY21 NP/revenue +14%/+9%. Both are in line with market consensus and our estimates. Payout ratio decreased to 42% from 99%. That said, the Company used RMB1.4bn to buy back shares in FY21. Therefore, total amount returned to shareholders was 80% in FY21, consistent to its policy. Amid raw material cost pressure, management said its record-high GPM in FY21 is at a relatively high level and it will not be the first one in the sector to raise price. Historically, GPM fell in FY14 and FY18 during raw materials prices upcycle. We cut FY22-23E NP by 6-7% on lower GPM assumptions and expect NP to drop 2% in FY22E. We downgrade the stock from Buy to HOLD, and lower TP from HK$7.36 to HK$6.02, based on 15x FY22E P/E. We think earnings downside risk is not priced in given that share price +2% YTD.
Emerging channels accounted for high sd of revenue in FY21. Revenue +9% led by 12% and 15% growth of dairy & beverage and snack food segments, respectively. Sales of rice crackers segment fell 0.5% due to weak gift pack and export sales. Gift pack sales was affected by isolated COVID-19 outbreaks before CNY. Also, pandemic outbreak abroad dampened export sales. On the positive side, revenue mix of high-GPM emerging channels increased from mid single-digit to high single-digit, driving 0.2ppt GPM expansion to 48.2%.
2HFY21 OP growth moderated. 2HFY21 revenue growth was 8% YoY (vs 11% in 1HFY21). 2HFY21 GPM widened 0.9ppt YoY to 48.2%, driven by 3.4ppt GPM expansion of dairy & beverage (wholemilk powder cost dropped in 2HFY21). 2HFY21 OP growth moderated to 16% YoY from 23% YoY in 1HFY21 due to 0.9ppt increase of admin expenses ratio. If the RMB238mn gain from disposal of fixed assets was excluded, 2HFY21 OP YoY growth would be 8%.
FY22E YTD performance. FY22E YTD Hot-kid milk growth momentum has continued (vs 11% growth in FY21) as consumers think drinking milk can enhance immunity. YTD rice cracker sales declined YoY due to high base but increased compared to the same period in FY19.
Raw materials cost pressure. Prices of wholemilk powder, tinplate, paper and palm oil (around 30% of COGS) recorded double-digit increase this year. The Company will optimize production efficiency and grow its top line to offset cost pressure and study the feasibility of price hikes. Management said its record-high GPM in FY21 is at a relatively high level and it will not be the first one in the sector to raise price. Historically, during raw materials prices upcycle in FY14 and FY18, GPM declined 1.3ppt YoY in FY14 and 4.1ppt YoY in FY18, respectively.
Downgrade to Hold. Our TP is reduced from HK$7.36 to HK$6.02, based on 15.0x FY22E P/E (vs 19.0x FY21 P/E previously). Catalysts: (1) price hikes; (2) better-than-expected revenue/margins. Risks: (1) unfavorable raw materials prices; (2) keen competition; (3) food safety issues.