Seeking the Silver Lining Domestically and Overseas

Summary of Want Want China Holdings Ltd Conference Call Company Overview - Company: Want Want China Holdings Ltd (0151.HK) - Industry: Consumer Products, specifically Snack Foods and Dairy - Current Price Target: HK$4.80, down from HK$5.00 [1] Key Points Domestic Business Performance - Sales Decline: The snack foods segment experienced a year-over-year decline in sales due to weak popsicle sales, while the dairy segment also saw a decline in the first half of FY24 [2] - Demand Pressure: Both segments are under pressure from lukewarm industry demand, leading to cautious outlook for the second half of FY24, particularly due to sluggish gifting demand during the Chinese New Year [2] - Inventory Levels: Management reported healthy inventory levels and noted a sequential recovery in sales observed in October, with low-single-digit growth [2] - Margin Outlook: 1HFY24 margins were positively impacted by reduced advertising and promotion (A&P) costs and lower raw material costs, particularly from the lifting of milk powder tariffs from New Zealand. However, rising milk powder and packaging prices suggest a tougher margin outlook for 2HFY24 and FY25 [2] Overseas Business Development - Growth Potential: The overseas business has shown strong growth, with double-digit growth in FY23 and 1HFY24. The company plans to further develop this segment [3] - Contribution to Revenue: Currently, the overseas business contributes a low single-digit percentage to total revenue, indicating that it is not yet a significant driver for the company [3] - Investment Needs: Increased channel investment and production capacity are expected as the company scales its overseas operations, with anticipated margin improvements in this segment [3] Financial Outlook and Valuation - Earnings Estimates: EPS estimates for FY24 were lowered by 4%, and by 8% for FY25 and FY26, reflecting ongoing demand pressures and diminishing cost tailwinds [4][11] - Price Target Adjustment: The price target was reduced by 4% to HK$4.80, reflecting lower earnings estimates and increased capital expenditure (capex) as the company expands its overseas presence [4][11] - **Valuation Metrics**: The new target implies a P/E ratio of 14x based on 2025 estimates, which is considered to fully reflect the company's outlook [4] Financial Summary - **Revenue Projections**: Revenue for FY24 is projected at RMB 23,376 million, down from previous estimates, with a slight recovery expected in FY25 and FY26 [12][15] - **Gross and Operating Margins**: Gross margins are expected to decline slightly, with operating margins forecasted to decrease by 0.3 to 1.3 percentage points over the next few years [11][15] - **Market Capitalization**: The current market cap is approximately US$6.99 billion, with an average daily trading value of US$4 million [6] Additional Insights - Market Conditions: The overall market conditions remain challenging, with limited upside catalysts in the near term [4] - Government Policies: The company could benefit from potential government stimulus policies aimed at boosting consumption, which could positively impact domestic demand [2] This summary encapsulates the key insights from the conference call regarding Want Want China Holdings Ltd, highlighting the challenges and opportunities within both domestic and overseas markets, as well as the financial outlook and valuation adjustments.