Top-line remained resilient in 1H2020. Although China Foods' 1H2020 salesvolume fell 5.9% YoY due to the impact of the COVID-19 outbreak in 1Q2020,sales amount slightly fell 1.6% YoY to RMB9,401 million. Particularly, sparklingdrinks sales grew 3.4% YoY to RMB7,382 million, while juices and water salesrecorded double-digit slump. Due to reduced PET prices and increasing salesvolume of high-margin products, the overall gross margin rose 3.1 ppt to 38.7%in 1H2020 but was offset by the increase of S&D expenses ratio. Given one-offcompensation income of RMB96 million and various government grants, 1H2020shareholders' profit rose 13.8% YoY to RMB330 million, better than expectations.
　　Both sales volume and ASP of China Foods' sparkling portfolio continuedto grow. As an absolute leader in the carbonated soft drinks industry, Coca-Colais further refreshing its product line in alignment with evolving consumer trends.
　　China Foods' Sugar-free and Fiber+ series sales rose nearly 50% YoY, whilesleek cans and mini cans recorded stronger sales growth of almost 60% YoY.
　　Accelerated new product development. A total of 20 new beverage productswere launched by China Foods in 1H2020 and they contributed more than 10%of the total sales. Looking forward, the Company is to reach consumers throughmore diversified distribution channels from offline to online.
　　China Foods is expected to achieve the single-digit sales growth guidance for2020. We also believe that its bottom-line will grow steadily during 2020-2022.
　　Given that the market sentiment has softened as the pandemic lingers, wemaintain "Buy" but reduce TP to HK$3.45, which implies 17.5x/ 15.2x/ 13.5x2020-2022 PER.