UBS Group released a research report stating that it has lowered the target price for Want Want China (00151) by 10.8%, from HKD 6.5 to HKD 5.8, maintaining a "buy" rating. UBS has reduced its forecasts for Want Want's net profit in 2025 and 2026 by 8% and 7% respectively, reflecting challenges in sales and profit margins. The latest forecast indicates that sales and net profit for the fiscal year 2025 will remain stable, or that sales in the second half of the fiscal year 2025 will increase by 3% year-on-year, but net profit will decrease by 6%.
Want Want's sales for the first half of the fiscal year 2025 decreased by 3.5% year-on-year to 10.8 billion yuan (same below), while net profit increased by 7.6% year-on-year to 1.8 billion yuan, with a gross margin increase of 2.2 percentage points to 47.3% and a net profit margin increase of 1.7 percentage points to 17.1%. The bank believes that both revenue and net profit fell short of expectations, mainly reflecting challenges posed by the macro environment.
In terms of sales, management expects that the third quarter of the fiscal year 2025 will perform better than the second quarter. The guidance provided by management in October 2024 suggested low single-digit growth. Management now anticipates that the gross margin for the second half of the fiscal year 2025 will be comparable to 2024, as the company has six months of inventory. The impact of rising milk powder prices has yet to be reflected.
