China Feihe: Industry Headwinds Dragged 2023 Profit; Fair Value Estimate Cut 8% to HKD 5.40

Narrow-moat China Feihe’s profit warning was disappointing, but the sizable drop in 2023 earnings was directionally consistent with our view, as highlighted in the most recent note on Feb. 6. The company expects revenue to decline by 6.7%-9.5% year on year to CNY 19.3 billion-CNY 19.9 billion in 2023, with net profit ranging between CNY 3.13 billion and CNY 3.43 billion, a fall of 30.6%-36.7%. After factoring in the weak guidance, we reduce our 2023-28 revenue forecasts by 8%-10% and net income estimates by 9%-22%. As a result, we reduce our fair value estimate to HKD 5.40 per share, from HKD 5.90. Although the shares are currently undervalued, we think investors would stay sidelined due to the absence of near-term earnings drivers and growth headwinds amid the subdued birthrate in China.