Feihe Earnings: Falling Birth Rate Damped Results; Operational Efficiencies to Drive Profit Growth

Narrow-moat China Feihe’s 2023 results were mixed but in line with its preliminary profit guidance. Revenue of CNY195.3 million was slightly short of our estimate of 196.3 million while operating margin was in line. Higher nonoperating income drove better-than-expected net profit. Management’s focus in 2024 is to maintain the price stability of its flagship classic Astrobaby products following the inventory clearance last year. We moderately trim our 2024-27 revenue projections to account for a softer 2023 number but raise our net profit estimates by 1%-6% to factor in slightly higher margins from 2025 onward as Feihe executes on digitalizing its distribution network to achieve better efficiencies and lower expenses ratio.