Sales growth slowed down in 2HFY19. Vitasoy’s FY19 revenue was up16.4% YoY to HK$7,526 million, mainly driven by mainland business. However,the Company’s sales growth in 2HFY19 slowed to 9.2% YoY, mainly due toslowing mainland growth （13.0% YoY in HK$ and 22% YoY in RMB）。 Thanks tofavorable raw materials price, Vitasoy’s FY19 GPM improved 0.8 ppt YoY to53.7%. Due to investment in brand equity program, Vitasoy’s selling expensesratio rose 1.2 ppt YoY. The Company’s FY19 shareholders’ profit rose 18.8%YoY to HK$696 million. In 2HFY19, its profit decreased 5.7% YoY, andincreased 1% YoY in terms of fixed FX.
Mainland sales growth has become moderate, but sustainable growth canstill be achieved. Due to a high base, mainland sales growth in 2HFY19notably slowed down compared to FY18 and 1HFY19. However, we believethat geographic expansion, category extension and growing brand influencecan help Vitasoy achieve sustainable growth in mainland China. On the otherhand, their infrastructure upgrade plan has affected profitability of Hong Kongbusiness, but it will help Vitasoy deliver good results in the long run.
Due to solid a foundation and growing market position, we have raised TP toHK$36.60, indicating a reasonable premium compared to its peers consideringits remarkable growth potential. As Vitasoy has switched to a new growthmodel, investors should reconsider its valuation, which may not always trade ata significant premium to its peers. Therefore, we lower rating to "Neutral"but raise TP to HK$36.60, which represents 48.8x FY2020 PER, 43.2 xFY2021 PER and 38.1x FY2022 PER.