Investment Rating - The report maintains a "Buy" rating for China Feihe (6186.HK) with a target price raised to HKD 5.21, indicating a potential upside of 23.2% from the current price of HKD 4.23 [5][7][8]. Core Views - Despite a challenging competitive environment, China Feihe's fundamentals have significantly improved after two years of channel reforms, with healthy channel inventory levels and a notable recovery in terminal prices. The sales of ultra-premium new products have shown strong growth, contributing to an expansion in overall brand strength and market share [5]. - The management is optimistic about revenue acceleration in the second half of 2024, projecting a double-digit year-on-year revenue growth for the full year [5][6]. - The company continues to focus on product premiumization, with ultra-premium product revenue growing by 19.6% in the first half of 2024, while high-end and regular product revenues declined [5][6]. Summary by Sections Revenue and Profitability - In 1H24, China Feihe's infant formula revenue grew by 5% year-on-year, with offline sales increasing by 3% and online sales by 9%. The current channel inventory is estimated at one and a half months, which is considered healthy [5]. - The gross margin for 1H24 expanded significantly by 2.6 percentage points to 67.9%, driven by product mix improvement and recovery in overall pricing after implementing various channel reforms [5][13]. - The company expects to maintain a high gross margin level, although marketing expenses may increase starting in 2H24, potentially putting pressure on net profit margins [5][6]. Dividend Policy - China Feihe announced a dividend of HKD 0.1632 per share for 1H24, with a payout ratio increasing to 72.2% from 66.2% in 1H23. The management reiterated a commitment to a 10% annual increase in absolute dividend amounts, maintaining a payout ratio above 70% [6][7]. Financial Forecasts - The report projects a revenue of RMB 20,497 million for 2024, reflecting a year-on-year growth of 4.9%. The core net profit is expected to reach RMB 4,387 million, a 7.5% increase compared to the previous year [11][14]. - The financial metrics indicate a PE ratio of 8.1 for 2024, with a return on equity (ROE) forecasted at 15.0% [11][12].

Investment Rating - The investment rating for the company is Neutral [3][8]. Core Views - The company's high-end product series has driven profit margin improvements, but future profit growth may be limited [2][3]. - In the first half of 2024, the company achieved a revenue of 10.09 billion RMB, a year-on-year increase of 3.7%, while the infant formula milk powder industry experienced a double-digit decline [2][3]. - The gross margin increased by 2.6 percentage points to 67.9%, and operating profit reached 3.06 billion RMB, with an operating profit margin up nearly 5 percentage points to 30.3% [2][3]. - Net profit returned to growth in the first half of 2024, increasing by 18.1% year-on-year to 1.91 billion RMB, corresponding to a net profit margin of 18.9% [2][3]. - The company plans to distribute an interim dividend of 0.1632 HKD per share, a year-on-year increase of 21%, with a payout ratio of 72% [2][3]. Summary by Sections Revenue and Profitability - The company has been restructuring its product line by removing low-end products and focusing on high-end and ultra-high-end series, which has led to a significant increase in gross margin [2][3]. - Future growth drivers include increasing consumer confidence in domestic infant formula quality, the impact of new national standards raising industry entry barriers, and growth in the high-end market segment [2][3]. Pricing Strategy - The company has been consistently raising product prices, with a price increase of approximately 40 RMB per can for its high-end series [2][3]. - Current pricing for high-end products is already at a high level, which may limit future price increases [2][3]. Target Price Adjustment - The target price has been adjusted to 4.00 HKD based on a 7.7 times 2025 price-to-earnings ratio, reflecting a conservative outlook due to ongoing industry pressures and limited profit growth potential [2][3].

Investment Rating - The investment rating for the company is Neutral [3][7]. Core Insights - The company's high-end product series has driven profit margin improvements, but future profit growth may be limited. The company reported a revenue of 10.09 billion RMB in the first half of 2024, a year-on-year increase of 3.7%, while the infant formula industry experienced a double-digit decline. Gross margin improved by 2.6 percentage points to 67.9% due to product structure optimization and the continued growth of high-end series [1][2]. - The company plans to distribute an interim dividend of 0.1632 HKD per share, a year-on-year increase of 21%, with a payout ratio of 72% [1]. Summary by Sections Financial Performance - In the first half of 2024, the company achieved a net profit of 1.91 billion RMB, a year-on-year increase of 18.1%, corresponding to a net profit margin of 18.9%. Operating profit was 3.06 billion RMB, with an operating profit margin of 30.3%, up nearly 5 percentage points year-on-year [1][2]. - Revenue projections for the upcoming years are as follows: 20.8 billion RMB for 2024E, 22.2 billion RMB for 2025E, and 23.3 billion RMB for 2026E, with expected growth rates of 6.5%, 6.5%, and 5.0% respectively [3][8]. Market Dynamics - The growth drivers for the company include increasing consumer confidence in domestic infant formula quality, the release of new national standards raising industry entry barriers, and the growth of the high-end market segment [2]. - The company has been removing low-end product lines and focusing on high-end and ultra-high-end series, which has contributed to the significant increase in gross margin [2]. Valuation - The target price has been adjusted to 4.00 HKD, based on a price-to-earnings ratio of 7.7 times the 2025 earnings, reflecting a conservative outlook due to ongoing industry pressures and limited profit growth potential [2].

Investment Rating - The report maintains a "Buy" rating for China Feihe (6186.HK) with a target price of HKD 4.9, indicating a potential upside of 17% from the current price of HKD 4.19 [4][12]. Core Insights - China Feihe's revenue for the first half of 2024 reached HKD 10.09 billion, a year-on-year increase of 3.7%, while net profit grew by 18% to HKD 1.91 billion. The company is expected to benefit from a potential recovery in birth rates in 2024, signaling the end of the industry's worst period [1][2]. - The company continues to focus on high-end product offerings, with ultra-high-end product revenue increasing by 19% to HKD 7.14 billion, and the introduction of new premium products [1][2]. - The company has a strong cash position with net cash of HKD 20 billion, allowing for continued shareholder returns, with a projected dividend growth rate of at least 10% [2][12]. Financial Performance - The gross margin for the first half of 2024 was 67.9%, an increase of 2.6 percentage points year-on-year, driven by a higher proportion of ultra-high-end products and reduced promotional efforts [1][2]. - The net profit margin improved to 18.9%, up 3.3 percentage points year-on-year, reflecting effective cost management and increased profitability [1][2]. - The company reported a dividend per share of HKD 0.1632 for the first half of 2024, a 21% increase from the previous year, with a payout ratio of 70% [2][12]. Product Strategy - China Feihe is committed to upgrading its product structure towards high-end offerings, launching new products such as preterm infant formula and organic milk powder [1][2]. - The company plans to expand its functional nutrition segment with new adult nutrition milk powder and cheese products in the second half of 2024 [1][2]. Market Outlook - The report anticipates a recovery in birth rates in 2024, which could positively impact the infant formula market, although the industry faces challenges from declining birth rates and intense competition [1][2]. - The company is strategically managing channel inventory to stabilize end prices amid a competitive landscape [1][2].

Investment Rating - The investment rating for the company is "Buy" (maintained) [2] Core Views - The company reported a revenue of 10.095 billion yuan for H1 2024, a year-on-year increase of 3.7%, and a net profit attributable to shareholders of 1.875 billion yuan, up 10.6% year-on-year, exceeding expectations. The company plans to distribute an interim dividend of 0.16 HKD per share, representing a year-on-year increase of 21.0%, with a high payout ratio of 78% [3] - Despite a weak industry demand and intense competition, the company is recognized as a leader in the Chinese infant formula market, with a continuous increase in market share and solid brand and channel advantages, maintaining the "Buy" rating [3] Summary by Sections Financial Performance - In H1 2024, the company's gross margin improved to 67.9%, an increase of 2.6 percentage points year-on-year, primarily due to the revenue growth of high-margin products. The net profit margin for H1 2024 was 18.9%, up 2.3 percentage points year-on-year [5] - The company has adjusted its net profit forecasts for 2024-2025 to 3.81 billion and 4.16 billion yuan, respectively, down from previous estimates of 4.82 billion and 5.28 billion yuan, while introducing a new estimate of 4.47 billion yuan for 2026 [3][7] Product and Market Strategy - The company is focusing on promoting the Xingfeifan and Zhuorui product lines, launching new products in line with market trends, and achieving good terminal sales. As of H1 2024, offline distribution accounted for 76.8% of total dairy product revenue, with over 2,800 distributors covering more than 80,000 retail points [4] - The company is also targeting the younger generation through the rapidly growing e-commerce channel and has conducted approximately 460,000 seminars to engage new customers [4] Future Outlook - Looking ahead, the company plans to continue expanding its ultra-premium and premium+ product lines, optimizing its product structure, maintaining reasonable discount levels, and actively improving cost efficiency, which is expected to enhance profitability in 2024 [6]

Investment Rating - The report maintains a "Buy" rating for the company [4]. Core Views - The company's revenue for H1 2024 reached 10.095 billion yuan, an increase of 3.70%, while net profit attributable to shareholders was 1.875 billion yuan, up by 10.56% [3]. - The company plans to distribute an interim dividend of 0.1632 HKD per share, totaling approximately 1.48 billion HKD, equivalent to about 1.353 billion yuan, with a payout ratio of 72.15% [3]. - Channel reforms have shown effectiveness, with domestic revenue growing by 3.72% year-on-year [3]. - The company's online revenue share in dairy products increased by 1.00 percentage points year-on-year, with online and offline revenues of 7.753 billion yuan and 2.342 billion yuan, respectively [3]. - The company has improved its production capacity, with a designed annual capacity of approximately 363,000 tons, an increase of 11.01% year-on-year [3]. - The gross profit margin for H1 2024 was 67.88%, up by 2.56 percentage points, driven by lower raw material prices and increased sales of high-margin products [3]. - The company’s net profit margin for H1 2024 was 36.90%, an increase of 3.38 percentage points, attributed to improved gross margin and reduced expense ratios [3]. - The company is a leader in the infant formula industry in China, with ongoing product structure upgrades driven by strong R&D capabilities [3]. Financial Summary - The company’s projected net profits for 2024, 2025, and 2026 are 3.759 billion yuan, 3.979 billion yuan, and 4.194 billion yuan, respectively, with year-on-year growth rates of 10.88%, 5.84%, and 5.41% [4]. - The company’s PE ratios for 2024, 2025, and 2026 are projected to be 9, 8, and 8 times, respectively [4]. - The company’s revenue for 2024 is estimated at 20.394 billion yuan, reflecting a year-on-year growth of 4.41% [10].

Investment Rating - Maintain "Overweight" rating [1][3] Core Views - Feihe achieved revenue of RMB 10.095 billion in H1 2024, up 3.7% YoY, with net profit of RMB 1.911 billion, up 18.1% YoY [1] - Feihe maintained its leading position in China's infant formula market with a 19.2% market share across all channels [1] - The company's ultra-premium product Zhuo Rui saw an 80% revenue growth in H1 2024 [1] - Gross margin improved to 67.9% in H1 2024, up 2.6 percentage points YoY, driven by reduced discounts and improved product mix [1] - Feihe successfully expanded in coastal markets such as Guangdong, Fujian, and Shanghai, with significant growth in Shanghai [1] - The company plans to launch new products, including infant formula, nutritional products, and cheese products in H2 2024 [1] Financial Performance - H1 2024 revenue: RMB 10.095 billion (+3.7% YoY) [1] - H1 2024 net profit: RMB 1.911 billion (+18.1% YoY) [1] - H1 2024 gross margin: 67.9% (+2.6 ppts YoY) [1] - H1 2024 net margin: 18.9% (+2.3 ppts YoY) [1] - 2024E revenue: RMB 20.939 billion (+7.2% YoY) [2] - 2024E net profit: RMB 3.773 billion (+11.3% YoY) [2] Market Position - Feihe holds a 19.2% market share in China's infant formula market across all channels [1] - Offline channel market share: 22.7% [1] - Online channel market share: 13.8% [1] Product Strategy - Focus on premiumization, with Zhuo Rui driving growth in the ultra-premium segment [1] - Plans to launch new products, including infant formula, nutritional products, and cheese products in H2 2024 [1] Valuation - 2024E PE: 9x [1] - 2024E EPS: RMB 0.42 [1] - Current price: HKD 4.19 [3]

Financial Performance - The group's revenue for the six months ended June 30, 2024, was RMB 10,094.9 million, an increase of 3.7% year-on-year[4]. - The group's gross profit for the same period was RMB 6,852.5 million, reflecting a year-on-year increase of 7.8%[4]. - The group's profit for the period was RMB 1,911.5 million, representing an 18.1% increase compared to the same period last year[4]. - Basic earnings per share for the company were RMB 0.21, up from RMB 0.19 in the previous year[4]. - The total comprehensive income for the period was RMB 1,886.7 million, compared to RMB 1,747.8 million in the prior year[6]. - The company reported a net profit margin of approximately 18.9% for the reporting period[4]. - The company's net income for the six months ended June 30, 2024, was RMB 862,259 thousand, slightly down from RMB 869,592 thousand in the previous year[25]. - Profit before tax increased by 24.4% to RMB 3,029.4 million, compared to RMB 2,435.0 million for the same period in 2023[62]. - The total tax expense for the period was RMB 1,117,984 thousand, compared to RMB 816,366 thousand for the same period in 2023, indicating an increase of 36.9%[31]. - The company's profit attributable to equity holders for the six months ended June 30, 2024, was RMB 1,875,011,000, compared to RMB 1,695,913,000 for the same period in 2023, representing an increase of approximately 10.6%[36]. Expenses and Costs - The group’s sales and distribution expenses increased to RMB 3,535.4 million, compared to RMB 3,459.9 million in the previous year[5]. - The company recorded other income and gains of RMB 862.3 million, slightly down from RMB 869.6 million in the previous year[5]. - The group’s administrative expenses were RMB 738.7 million, a decrease from RMB 757.5 million year-on-year[5]. - Selling and distribution expenses increased by 2.2% to RMB 3,535.4 million, attributed to higher costs for online activities and promotional events[58]. - Financial costs for the six months ended June 30, 2024, were RMB 26,236 thousand, a decrease from RMB 27,347 thousand in the same period of 2023[29]. - The company's financial costs, excluding lease liabilities, were RMB 24,268 thousand for the six months ended June 30, 2024[18]. Assets and Liabilities - Non-current assets increased from RMB 13,213,200 thousand in June 2023 to RMB 13,640,407 thousand in June 2024, reflecting a growth of approximately 3.2%[8]. - Current assets rose from RMB 22,395,985 thousand in June 2023 to RMB 22,554,271 thousand in June 2024, indicating an increase of about 0.7%[8]. - Total liabilities increased from RMB 6,712,617 thousand in June 2023 to RMB 7,382,230 thousand in June 2024, representing a growth of approximately 10%[8]. - Non-current liabilities rose significantly from RMB 1,852,861 thousand in June 2023 to RMB 2,478,102 thousand in June 2024, marking an increase of around 33.7%[9]. - The company's net asset value decreased from RMB 27,043,707 thousand in June 2023 to RMB 26,334,346 thousand in June 2024, a decline of about 2.6%[9]. - Cash and cash equivalents increased from RMB 9,667,497 thousand in June 2023 to RMB 10,440,941 thousand in June 2024, showing a growth of approximately 8%[8]. - The total current liabilities increased from RMB 6,712,617 thousand in June 2023 to RMB 7,382,230 thousand in June 2024, reflecting a rise of about 10%[9]. - The company's long-term bank deposits increased from RMB 300,000 thousand in June 2023 to RMB 540,000 thousand in June 2024, indicating an increase of 80%[8]. - The total assets as of June 30, 2024, amounted to RMB 35,609,185 thousand, compared to RMB 36,194,678 thousand as of December 31, 2023[18][20]. - The total liabilities as of June 30, 2024, were RMB 8,565,478 thousand, a decrease from RMB 9,860,332 thousand as of December 31, 2023[20]. Market and Industry Trends - The average disposable income in China reached RMB 39,218 in 2023, with a compound annual growth rate of 6.8% from 2018 to 2023, which is expected to drive demand for premium infant formula products[44]. - The number of newborns in China decreased to approximately 9.0 million in 2023, down from 10.94‰ birth rate in 2018 to 6.39‰ in 2023, reflecting a significant demographic shift[43]. - The Chinese government has introduced favorable industry policies aimed at increasing the proportion of domestically produced infant formula, targeting a self-sufficiency level of 60%[44]. - The market for premium infant formula is expected to grow due to rising urbanization and increasing disposable income among consumers in China[44]. - The new national safety standards for infant formula, effective February 22, 2023, impose stricter regulations on protein, carbohydrates, and micronutrients, benefiting leading companies in the infant formula sector[45]. Strategic Initiatives - The company anticipates continued growth in revenue and profit for the next fiscal period, driven by market expansion and new product development strategies[4]. - The group plans to continue innovating and optimizing its product portfolio to boost consumer confidence and expand growth opportunities in the dairy sector[78]. - The group has increased its production capacity to over 363,000 tons, primarily due to enhancements in liquid milk production facilities[48]. - The group conducted approximately 460,000 face-to-face seminars, acquiring over 1,430,000 new customers as of June 30, 2024[49]. - The company has implemented a policy requiring customers to pay in advance for product sales, except for certain major customers with established credit terms[37]. Dividends and Shareholder Returns - The company declared a final dividend of HKD 0.1484 per share, totaling approximately RMB 1.25 billion for the year ended December 31, 2023[32]. - The company declared an interim dividend of HKD 0.1632 per share, totaling approximately HKD 1,479.8 million, which represents about 70% of the profit for the six months ending June 30, 2024[85][87]. - The company plans to maintain a dividend policy of distributing no less than 30% of net profit for each financial year, depending on future investment plans[87].

Financial Performance - Revenue decreased by 8.3% year-on-year from RMB 21,310.9 million in 2022 to RMB 19,532.2 million in 2023[8] - Gross profit decreased by 9.2% year-on-year from RMB 13,950.6 million in 2022 to RMB 12,663.4 million in 2023[8] - Net profit decreased by 33.5% year-on-year from RMB 4,948.1 million in 2022 to RMB 3,290.4 million in 2023[8] - Total revenue decreased by 8.3% to RMB 19,532.2 million in 2023 from RMB 21,310.9 million in 2022[33] - Infant formula products revenue declined by 10.3% to RMB 17,876.8 million, accounting for 91.5% of total revenue[33] - Gross profit decreased by 9.2% to RMB 12,663.4 million, with a gross margin of 64.8% in 2023[37] - Net profit attributable to shareholders dropped by 33.5% to RMB 3,290.4 million in 2023[46] - Revenue decreased by 8.3% from RMB 21,310.9 million in 2022 to RMB 19,532.2 million in 2023, primarily due to low birth rates in China and intense industry competition[32] - Gross profit margin decreased from 65.5% in 2022 to 64.8% in 2023, with gross profit declining by 9.2% to RMB 12,663.4 million[30] - Net profit for the year dropped by 33.5% to RMB 3,290.4 million, with a net profit margin of 16.8% in 2023 compared to 23.2% in 2022[30] - Sales and distribution expenses increased by 2.5% to RMB 6,709.1 million, representing 34.3% of total revenue in 2023[30] - Administrative expenses rose by 14.8% to RMB 1,762.0 million, accounting for 9.0% of total revenue in 2023[30] - Other income and gains increased by 21.3% to RMB 1,659.5 million, contributing 8.5% to total revenue in 2023[30] - Sales and distribution expenses increased by 2.5% to RMB 6,709.1 million, mainly due to higher advertising and promotional costs[39] - Administrative expenses rose by 14.8% to RMB 1,762.0 million, driven by increased employee and R&D costs[41] - Net cash generated from operating activities decreased to RMB 4,145.3 million in 2023 from RMB 6,279.1 million in 2022[54] - Capital expenditures amounted to RMB 1,510.1 million, primarily for property, plant, and equipment[56] - The company's asset-liability ratio increased to (0.36) as of December 31, 2023, compared to (0.33) in the previous year[52] - Total asset mortgages decreased by RMB 1,195.2 million to RMB 418.9 million as of December 31, 2023[58] Assets and Equity - Total assets increased to RMB 36,194.7 million in 2023 from RMB 35,515.8 million in 2022[6] - Total equity increased to RMB 26,334.3 million in 2023 from RMB 25,474.9 million in 2022[6] - Cash and cash equivalents stood at RMB 10,440.9 million as of December 31, 2023[49] - The company's distributable reserves as of December 31, 2023, amounted to approximately RMB 11,323.6 million, with RMB 1,220.9 million proposed for the final dividend distribution[108] Research and Development - Launched the "14th Five-Year Plan" national key R&D project, leading the development of China's next-generation infant formula[10] - Established a research platform and foundation with Peking University and Harvard Boston Children's Hospital for brain development strategy[10] - China Feihe plans to focus on the "brain development" strategy and expand its product offerings across life cycle nutrition services[13] - The company will focus on developing next-generation infant formula products tailored to Chinese babies' needs, leveraging advanced "fresh-locking" technology and expanding into four major business areas: pregnant women and infants, children and students, health foods, and nutritional health[63] Awards and Recognition - Won 11 "World Dairy Innovation Awards" at the Global Dairy Congress[10] - China Feihe's three factories were recognized as national-level "Green Factories" in 2023[12] Market and Industry Trends - The number of newborns in China decreased to approximately 9.0 million in 2023, down from 10.94‰ in 2018 to 6.39‰ in 2023[16] - China's per capita disposable income in 2023 was RMB 39,218, with a CAGR of 6.8% from 2018 to 2023[17] - The high-end infant formula market is expected to drive growth in China's infant formula industry due to rising disposable incomes and urbanization[17] - The Chinese government's policies, such as the "Three-Child Policy," aim to slow the decline in birth rates and support the infant formula market[20] Distribution and Production - The company operates through a distribution network of over 2,800 offline customers, covering more than 83,000 retail outlets, contributing to 79.6% of total dairy product revenue[24] - The company's production capacity reached 327,000 tons annually across 11 production facilities as of December 31, 2023[25] - The company acquired 2.8 million new customers in 2023 through approximately 950,000 face-to-face seminars[27] - Revenue from nutritional supplements, primarily through Vitamin World USA, amounted to RMB 231.7 million, accounting for 1.2% of total revenue[28] Sustainability and Social Responsibility - The company is committed to sustainable development and contributing to China's dual carbon goals[14] - The company will continue to innovate green and circular development models, contribute to rural revitalization, and fulfill social responsibilities to achieve higher-quality sustainable development[63] - The group's charitable donations for the year ending December 31, 2023, totaled approximately RMB 27,044,000[108] Corporate Governance and Leadership - Chairman and CEO Leng Youbin, along with three other directors, will retire by rotation at the upcoming annual general meeting but are eligible and willing to stand for re-election[67] - Liu Hua, aged 51, serves as the Executive Director, Vice Chairman, Chairman of the Environmental, Social and Governance Committee, member of the Remuneration Committee, authorized representative under the Listing Rules, and Chief Financial Officer of the company[72] - Cai Fangliang, aged 55, serves as the Executive Director and President of the company, focusing on the group's marketing management and overall business development[73] - Tu Fang'er, aged 48, serves as the Executive Director, member of the Environmental, Social and Governance Committee, Vice President, Company Secretary, and authorized representative under the Listing Rules, extensively involved in the group's international business development and capital market matters[74] - Gao Yu, aged 50, serves as a Non-Executive Director and has extensive experience in investment banking and private equity, previously holding senior positions at Morgan Stanley[76] - Chen Guojin, aged 47, serves as a Non-Executive Director and is the co-founder and Managing Director of Guan Yan Asset Management (Hong Kong) Limited, with a background in investment banking and private equity[77] - Zhang Guohua, aged 59, serves as a Non-Executive Director and has a rich background in the nutrition and beverage industry, previously holding senior positions at Nestlé and Wyeth Nutrition[79] - Jacques Maurice LAFORGE, aged 68, was appointed as an independent non-executive director in June 2019, effective from October 2019, bringing extensive experience in the Canadian dairy industry[86] - Leng Youbin, aged 55, serves as the executive director, chairman, and CEO, responsible for the overall development strategy and business planning of the company since August 21, 1996[88] - Liu Hua, aged 51, serves as the executive director, vice chairman, and CFO, responsible for the company's audit, accounting, and financial management since November 6, 2000[88] - Cai Fangliang, aged 55, serves as the executive director and president, responsible for the overall management and business development of the company since November 22, 2010[88] - Tu Fang'er, aged 48, serves as the executive director, vice president, and company secretary, responsible for the company's international business development, capital market matters, and legal affairs since October 1, 2006[88] - Fan Yonghong, aged 56, was appointed as an independent non-executive director in June 2019, effective from October 2019, with extensive experience in financial management and served as the chairman of the audit committee[84] - Liu Jinping, aged 52, was appointed as an independent non-executive director in June 2019, effective from October 2019, and currently serves as the chairman of the remuneration committee and a member of the nomination and ESG committees[81] - Song Jianwu, aged 60, was appointed as an independent non-executive director in June 2019, effective from October 2019, and currently serves as a member of the nomination committee[82] - The board of directors is pleased to present the annual report and the audited financial statements for the year ended December 31, 2023[90] - Laforge Environmental Inc. and Laforge Holsteins Ltd., companies operated by Jacques Maurice LAFORGE, are involved in waste-to-energy facilities and mixed farming in Canada[86] Dividends and Shareholder Returns - The company plans to distribute no less than 30% of its net profit as dividends to shareholders each fiscal year, subject to future investment plans[96][100] - The proposed final dividend for the year ended December 31, 2023, is HK$0.1484 per share, totaling approximately HK$1,345,580,000 (equivalent to approximately RMB 1,220,923,000)[99] - The company paid an interim dividend of HK$0.1349 per share in September 2023, totaling approximately HK$1,223,021,000 (equivalent to approximately RMB 1,136,522,000)[99] - The final dividend for 2023 represents 70% of the profit for the six months ended December 31, 2023, based on the company's dividend policy[99] Share Capital and Share Options - The company's authorized share capital as of December 31, 2023, is $50,000, divided into 2,000,000,000,000 shares with a par value of $0.000000025 per share[104] - The Pre-IPO Share Option Plan allows for the issuance of up to 190,190,704 shares, representing approximately 2.10% of the company's total issued shares as of the report date[149] - All Pre-IPO share options granted to Dasheng Limited (totaling 190,190,704 shares) were exercised on September 29, 2022[155] - The 2020 Share Option Plan allows for the issuance of up to 134,000,100 shares, representing approximately 1.48% of the company's total issued shares as of the report date[159] - The maximum number of shares that can be issued under the 2020 Share Option Plan is limited to 1% of the total issued share capital[160] - The 2020 Share Option Plan allows the Board to grant share options to selected participants within a 10-year period starting from June 22, 2020[161] - Participants must pay HKD 1.00 as consideration for the grant of 2020 share options, and the payment is non-refundable[162] - The exercise price of the 2020 share options cannot be lower than the highest of: (a) the closing price on the grant date, (b) the average closing price over the 5 trading days before the grant date, or (c) the nominal value of the shares[165][166] - As of December 31, 2023, 28,044,000 share options granted in February 2021 remained unexercised, with an exercise price of HKD 23.80[168] - As of December 31, 2023, 7,712,900 share options granted in July 2021 remained unexercised, with an exercise price of HKD 16.84[168] - As of December 31, 2023, 7,442,000 share options granted in January 2022 remained unexercised, with an exercise price of HKD 11.769[168] - The company has 80,696,300 share options available under the 2020 Share Option Plan, representing approximately 0.89% of the total issued shares as of the reporting date[169] - The 2023 Share Award Plan has a maximum grant limit of 10% of the company's issued share capital as of May 25, 2023, which is 906,825,170 shares[178] - The 2023 Share Award Plan has a service provider sub-limit of 0.5% of the company's issued share capital as of May 25, 2023, which is 45,341,258 shares[178] - The 2023 Share Award Plan is valid for 10 years from May 25, 2023, and no further share awards can be made after the 10-year period[176] - Any share award to directors, key executives, or major shareholders exceeding 0.1% of the issued shares within a 12-month period requires shareholder approval[179] - The 2023 Share Award Plan aims to reward and retain eligible participants for their contributions to the company's growth and development[172] - Eligible participants for the 2023 Share Award Plan include employees, associated entities, and service providers[173] - The 2023 Share Award Plan is managed by the board or committee in accordance with the plan's terms and the trust deed[177] - The trustee cannot exercise voting rights for any shares held under the 2023 Share Award Plan until the shares are vested[182] - The 2023 Share Award Plan includes provisions for the trustee to purchase shares on the stock exchange or over-the-counter using group funding and other distributions[175] - The company repurchased a total of 1,000,000 shares at a total cost of approximately HKD 4.7 million during the reporting period[187] - As of December 31, 2023, the company had 9,554 full-time employees, an increase from 9,489 in the previous year[191] - The company's total issued shares as of December 31, 2023, were 9,067,251,704 after the repurchased shares were canceled[187] - The company's 2023 Share Award Plan will terminate on the 10th anniversary of its adoption on May 25, 2023, or on an earlier date determined by the Board[185] - The company believes the share repurchase reflects confidence in its market-leading position and long-term business prospects[188] - The company's public shareholding complies with the requirements of Listing Rule 8.08 as of the annual report date[186] - The company provides competitive compensation packages, including bonuses and promotions, to incentivize outstanding employee performance[192] - The company adheres to corporate governance principles, including effective internal controls and high ethical standards[194] - The company's 2023 Share Award Plan has not granted any share awards since its adoption on May 25, 2023[185] - The company's related party transactions disclosed in the financial statements are exempt from shareholder approval and annual review under Listing Rule 14A[189] - The company has adopted a standard code of conduct for directors and employees regarding securities transactions, ensuring compliance with regulatory standards[195] - The consolidated financial statements for the year ended December 31, 2023, were audited by Ernst & Young, and a resolution will be proposed at the upcoming annual general meeting to reappoint Ernst & Young as the company's auditor[196] - The company was not involved in any significant litigation or arbitration during the reporting period, and the directors are not aware of any pending or threatened litigation or claims that are material to the company[197] - The company is not aware of any specific tax relief granted to shareholders due to their interests in the company's securities[198] - The company has allocated sufficient resources to ensure continuous compliance with laws and regulations and maintains good relationships with regulatory authorities through effective communication[200] Shareholder Structure - Cold Youbin holds 587,516,458 shares (6.48%) through Dasheng Limited, which he controls with a two-thirds stake[129][130] - Cold Youbin's family trust holds 3,889,911,881 shares (42.90%) through Harneys Trustees Limited[129][130] - Liu Hua holds 345,681,920 shares (3.81%) through his family trust managed by Harneys Trustees Limited[129][131] - Cai Fangliang holds 101,647,734 shares (1.12%) through Adroit Shipping Limited, which he fully owns[129][131] - Harneys Trustees Limited holds a total of 4,461,740,357 shares (49.21%) across various trusts, including Cold Youbin's and Liu Hua's family trusts[136][137] - Liu Shenghui holds 813,663,014 shares (8.97%) through Dasheng Limited and his family trust[136][138] - Dasheng Limited holds 587,516,458 shares (6.48%), with Cold Youbin and Liu Shenghui owning two-thirds and one-third stakes respectively[136][138] - Tu Fang'er holds 23,717,804 shares (0.26%) through the J.T. Living Trust[129][131] - Gao Yu holds 7,536,151 shares (0.08%) as a result of allocations from Morgan Stanley Private Equity Asia III, LLC and related entities[132] - Chen Guojin holds 3,368,918 shares (0.04%) as a result of allocations from Morgan Stanley Private Equity Asia and related entities[132] Debt and Financial Instruments - The company did not issue any debt securities during the year ended December 31, 2023[140] - No equity-linked agreements were entered into during the year ended December 31, 2023[142] - The company did not provide any financial assistance or guarantees to its affiliates during the

Investment Rating - The report upgrades China Feihe (6186 HK) to a "Buy" rating with a target price of HKD 4 65 based on an 11x 2024 P/E and a total return of 21% including dividends [1] - The target price implies a potential upside of 13 3% from the current price of HKD 4 11 [2] Core Views - China Feihe has overcome its most challenging phase with improved channel inventory management stable brand momentum and stabilized gross margins for key products [1] - The company's free cash flow is expected to turn positive year-over-year and its dividend yield for 2024 is projected to rise to 7 7% among the highest in the consumer sector [1] - Enhanced channel and terminal price management will benefit long-term sustainable development despite potential short-term negative impacts on demand [1] - Short-term revenue growth remains uncertain but long-term market share growth is expected driven by improved terminal pricing and healthy inventory levels for core products [1] - Free cash flow is expected to improve in 2024 supporting further increases in dividend payouts [1] Financial Performance and Forecasts - Revenue for 2024E is projected at RMB 19 451 million a slight decline of 0 4% year-over-year with a gradual recovery expected in 2025E and 2026E [4] - Net profit attributable to shareholders is forecasted to grow by 2 9% in 2024E reaching RMB 3 489 million with further growth expected in subsequent years [4] - Gross margin is expected to remain stable at around 64 5% in 2024E with operating margin projected at 29 2% [6] - Free cash flow is anticipated to improve in 2024 driven by better profitability reduced working capital and lower capital expenditures [1] Channel and Inventory Management - China Feihe has implemented digital store management electronic fencing and a distribution system to optimize terminal inventory and price management [1] - These measures are expected to improve dealer profitability reinforce the premium positioning of Feihe products and create room for future ex-factory price increases [1] - Current inventory levels for core products such as Classic Star Flyer and Zhuorui are healthy at less than one month ensuring alignment between shipments and terminal sales [1] Dividend Policy - In 2023 China Feihe paid a dividend of RMB 2 36 billion representing 89% of free cash flow and a payout ratio of 69 6% up from 45 5% in 2022 [1] - Management has committed to increasing the absolute dividend amount in 2024 barring extreme adverse conditions [1] Market and Competitive Position - Despite weak market demand due to declining birth rates and consumer spending China Feihe aims for at least 5% revenue growth in 2024 [1] - The company's focus on premium products and improved pricing strategies is expected to help it gain market share in the long term [1]