Want Want China: New Channels and Declining Input Prices to Lift Profit Growth in Fiscal 2023

We retain our fiscal 2023 (ending March 2024) projections for narrow-moat Want Want China, with revenue and net income growing 5% and 23% year on year, respectively. We expect a sharp rebound in fiscal 2023 earnings as fiscal 2022 was hit by elevated milk powder and palm oil prices as well as operating deleverage for the dairy segment. We estimate that second-half fiscal 2023 top-line growth would be driven by gifting demand during Lunar New Year as Want Want launched gift pack stock-keeping units across the dairy and food categories. Subsequent channel restocking should also lift sales to distributors for the fiscal period. We keep our fair value estimate of HKD 6 per share, which implies 15 times fiscal 2024 P/E, 9 times enterprise value/EBITDA, and a 5.7% dividend yield. We think the company’s shares are undervalued with an attractive 2024 dividend yield of 7.3% based on the current price.