China's beverage market continued to recover. We believe that the beveragesector will resume organic growth in 2021-2022 due to likely better-than-expectedrebound in on-premise consumption based on China's effective cOVID-19 controland approval of cOvID-19 vaocine candidates.
　　Intensified competition. Although domestic demand for sparkling beverages isexpected to remain strong (among the young generation in particular),traditionalmainstream brands like Coca-Cola are faced with intensified market competition.Local brands are competing for precious retaill shelf space, with an aim to take abite out of Coca-Cola's and Pepsi's market share.Meanwhile, we have raised curconcerns on the impact of the coronavirus resurgence (in China Foods' operatingregions during 2H2020) for on-premise consumption as well as retail sales. wealso believe that distributors and wholesalers should be relatively cautious aboutreplenishing stock for 402020-1Q2021.
　　we revise up gross margin forecasts by 1.2 ppt 0.9 ppt 0.8 ppt to 39.6%/39.0%839.0% for 2020-2022.We maintain that China Foods' ASP will continueto rise due to product mix optimization and ongoing consumption upgrade trend.Besides, we further reduce our estimates on the Company's average procurementprice of PET throughout 2020-2022.
　　Reiterate "Buy" and maintain our TP of HK$3.45.We revise down our revenueforecasts by 3.5%/ 3.0%/1.8% for 2020-2022.We are more optimistic on ChinaFoods' gross margin cutlook and its disciplines of execution in terms of expensemanagement. We lift our EPS forecasts by 8.0%/8.6%/ 8.6% for 2020-2022.OurTP of HKS3.45 represents 15.6x 13.4x/ 11.9x 2020-2022 PER.