1H2021 results beat expectations. China Foods' sales volume rose 17.0% YoY in 1H2021. Revenue was up 19.3% YoY to RMB11,219 mn, beating expectations.
　　To be specific, sparkling drinks sales was up 16.7% YoY to RMB8,615 mn. Juices sales rose 32.0% YoY to RMB1,368 mn in 1H2021, 8.5% higher than in 1H2019, while packaged water sales rose 18.4% YoY to RMB835 mn, still 4.6% lower than in 1H2019. In 1H2021, China Foods locked in procurement prices of raw materials and packaging components in a timely manner. Overall gross margin rose 0.2 ppt YoY to 38.9%. SD&A expenses ratio improved 0.9 ppt YoY to 31.5%. As a whole, China Foods' adjusted EBIT grew 26.5% YoY to RMB934 mn and shareholders' profit grew 22.5% YoY to RMB405 mn in 1H2021.
Stable top-line growth prospects. Due to robust growth in zero-sugar products and mini packages, sales value of China Foods' sparkling drinks is forecasted to grow at CAGR of 7.6% from 2020 to 2023. Due to stronger consumer demand for juice drinks, sales value of China Foods' juice drinks is expected to grow at CAGR of 10.4% from 2020 to 2023. China Foods' RTD coffee is forecasted to maintain exceptional growth in 2H2021-2022, but packaged water sales may take longer to recover to pre-COVID-19 pandemic levels until 2H2022.
Due to improving product portfolio and packaging structure, coupled with effective distribution network and cost management, China Foods has positive bottom-line growth prospects in the long run. Its current valuation is attractive compared with its HK-listed F&B peers. We maintain our investment rating as "Buy". Our TP of HK$3.95 represents 15.9x/ 14.0x/ 12.4x 2021-2023 PER and 1.8x 2021 PBR.