Yanghe Earnings: Despite Slower Start, Healthy Inventory Paves the Way for Accelerating Growth

Yanghe’s decent 2022 results were in line with our expectations, but growth in the first quarter of 2023 was slightly behind our outlook. We think a high inventory level at the end of 2022 was the key drag, but our channel check indicated the company has successfully lowered inventory to a healthy 1.5-2 months after an aggressive destocking effort. This should help to pave the way for accelerating growth in the coming quarters. We maintain our earnings forecasts and our fair value estimate of CNY 177 per share. We think the shares are slightly undervalued as of the April 26 market close amid a solid growth outlook through midcycle.