External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

Equity Bottom-Up

<ul><li>Feihe pre-announced its 1H results which came in as a miss with flattish revenue (vs CMBIe: LSD increase) and a 23% to 36% net profit decline (vs CMBIe: flattish).</li><li>We have alerted in our previous downgrade report that a nearterm recovery could just be wishful thinking given 1) likely persistent low birthrates, 2) heightening industry competition, 3) a down-trending product mix, and 4) production economy deleveraging. In our view, an inflection point remains remote and should there be any, it would take time for fertility intention to manifest into legit IMF consumption.</li><li>This is not to mention that family and child planning consumption is late-cycle beneficiary as opposite to dine-out and shorthaul travel demand. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

Feihe pre-announced its 1H results which came in as a miss with flattish revenue (vs CMBIe: LSD increase) and a 23% to 36% net profit decline (vs CMBIe: flattish).We have alerted in our previous downgrade report that a nearterm recovery could just be wishful thinking given 1) likely persistent low birthrates, 2) heightening industry competition, 3) a down-trending product mix, and 4) production economy deleveraging. In our view, an inflection point remains remote and should there be any, it would take time for fertility intention to manifest into legit IMF consumption.This is not to mention that family and child planning consumption is late-cycle beneficiary as opposite to dine-out and shorthaul travel demand. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Feihe (6186 HK) – 1H below us; near-term recovery could just be wishful thinking

<ul><li>We take the view that family and child planning is unlikely to top the consumers’ wallet (as opposite to dine-out and short-haul travel demand), and IMF is unlikely to share a high sensitivity to China’s reopening.</li><li>While we concur with market view that the number of new borns could have troughed, however, it does not necessarily infer an immediate V-shape recovery that could take place within 1H23, not to mention seeing one over the course of the year.</li><li>The scenario should leave Feihe’s new capacity in Canada and Harbin under-utilized, and further weigh on GPM that has already seen pressure from an unfavorable sales mix change. </li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

We take the view that family and child planning is unlikely to top the consumers’ wallet (as opposite to dine-out and short-haul travel demand), and IMF is unlikely to share a high sensitivity to China’s reopening.While we concur with market view that the number of new borns could have troughed, however, it does not necessarily infer an immediate V-shape recovery that could take place within 1H23, not to mention seeing one over the course of the year.The scenario should leave Feihe’s new capacity in Canada and Harbin under-utilized, and further weigh on GPM that has already seen pressure from an unfavorable sales mix change. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Feihe (6186 HK) – Limited Upside upon a Lacklustre Outlook

<ul><li>2023 outlook. During the earnings call, management guided for a doubledigit growth for both revenue and net profits for 2023.</li><li>Despite the completion of its channel reform, we note that competition remains keen at a low birth rate.</li><li>We take the view that family and child planning is unlikely to top the spending agenda (as opposite to dine-out and short-haul travel demand), despite China’s reopening.</li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

2023 outlook. During the earnings call, management guided for a doubledigit growth for both revenue and net profits for 2023.Despite the completion of its channel reform, we note that competition remains keen at a low birth rate.We take the view that family and child planning is unlikely to top the spending agenda (as opposite to dine-out and short-haul travel demand), despite China’s reopening.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Feihe (6186 HK) – A 5%+ dividend yield looks attractive despite sluggish growth

<ul><li>Despite sentiment improving upon China’s re-opening, we feel that Feihe will likely remain a beta play, or essentially a laggard, to its F&amp;B peers that enjoy higher sensitivity to the theme.</li><li>We acknowledge the long-term benefits from the abolishment of social-distancing measures.</li><li>That said, we are also wary of the disruption to near term growth with uncertainties arising from how households and businesses react to this “exit wave”.</li></ul><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

Despite sentiment improving upon China’s re-opening, we feel that Feihe will likely remain a beta play, or essentially a laggard, to its F&amp;B peers that enjoy higher sensitivity to the theme.We acknowledge the long-term benefits from the abolishment of social-distancing measures.That said, we are also wary of the disruption to near term growth with uncertainties arising from how households and businesses react to this “exit wave”.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Feihe (6186 HK) – Looks to Be a Beta Play Within 1H23

<div><div><div><div><ul><li>We moderately trim our 2022/23E earnings by 6-7% p.a as we now attempt to factor-in 1) a lower GPM (by average 0.8pp) due to higher non-infant milk formula contribution and 2) a 1.5pp higher selling expense.</li><li>Our forecast in general is at the low end/ slightly below management guidance, as we believe a low birth rate could compound with an intensifying competition to weigh on margins and drive up promotion expenses.</li><li>Despite this, Feihe’s sequential sales recovery sustains our BUY rating.</li></ul></div></div></div></div><p><em>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</em></p>

We moderately trim our 2022/23E earnings by 6-7% p.a as we now attempt to factor-in 1) a lower GPM (by average 0.8pp) due to higher non-infant milk formula contribution and 2) a 1.5pp higher selling expense.Our forecast in general is at the low end/ slightly below management guidance, as we believe a low birth rate could compound with an intensifying competition to weigh on margins and drive up promotion expenses.Despite this, Feihe’s sequential sales recovery sustains our BUY rating.Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

China Feihe (6186 HK) – Completion of channel restructuring continues to drive a steady 2H recovery

China

China Feihe specializes in the development, production, and sale of infant formula milk, other dairy products, and nutritional supplements. The company offers a range of products including infant milk formula, adult milk powder, liquid milk, and health care products. Founded in 1962, its headquarters are in Beijing, China.

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China Feihe (6186 HK)