China Feihe: Profit Warning for First-Half 2023 Amid Low Birth Rate; Lowering Valuation

Narrow-moat China Feihe issued a profit warning announcement for first-half 2023, with net profit expected to fall between 23.2% and 36.4% versus first-half 2022. We think subdued birthrate is the primary reason for the lackluster profit. The pandemic and soft economic outlook likely dragged birthrates in 2022 and through first-half 2023. We had expected new births to stay flattish this year, but actual numbers may finish lower than our estimates. We still project a rebound in birthrate next year as macro economy improves and potentially more favorable policies to encourage new births.