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]
优化渠道管理提升企业投资价值，加大派息比例释放股东长期投资回报，上调至“买入”