Sales growth in mainland may further slow down. Due to competition andhigh base, we expect that Vitasoy's sales growth in mainland may further slowdown this year. We expect the Company's sales growth in mainland to bemid-teen digits (RMB) in 1HFY20. Due to RMB depreciation, we estimate thatthe sales growth in mainland China to be low-teen digit (HKD). Due to specialpolitical situation and weak macro economy in HK, Vitasoy's sales in HKremained weak. We expect the Company's revenue growth to be high-singledigits in 1HFY20. As the Company has invested more selling expenses toboost sales, Vitasoy's bottom-line growth will underperform top-line growth in1HFY20. Due to decreased channel inventory, sales growth in 2HFY20 isexpected to outpace 1HFY20.
　　Channel reform benefits continued to be gained; expansion in the northof China may accelerate. Vitasoy is increasing support to distributors andtraining more distributors to improve marketing ability. The Company willaccelerate channel penetration with more distributors included, especially afterDongguan factory commences production in June 2020. Vitasoy has weakpresence in the northern China market, and cannot fully meet customerdemand due to limited capacity. We expect that Vitasoy may advance theirtimetable for factory construction in northern China to cope with competitionand development of the new market.
　　Due to its strong brand reputation and production innovation, we are notconcerned about the impact of competition on Vitasoy in the long run.
　　Step-by-step nationalization will ensure that the Company will grow at mid-teendigits in the next five years. Therefore, we lower TP to HK$34.60, butupgrade rating to "Accumulate". New TP represents 49.9x/ 43.5x/ 38.8xFY20/ FY21/ FY22 PER.