China Feihe: Improved Mix and Easing Competition to Drive Profit Growth; Lift Valuation by 13%

We review our assumptions for China Feihe and increase our 2025-28 net income estimates by 2%-5%. We also raise our stage II EBI growth rate assumption from 2.0% to 3.5%, as we think China Feihe has continued to deliver progress in product mix improvement and, more importantly, maintaining pricing stability in the retailer level, which should support better gross margin over the long run. We assume Feihe is able to continue gaining share in the broader infant milk formula, or IMF, market from small domestic brands and foreign brands. Consequently, we raised our fair value estimate to HKD 6.10 per share from HKD 5.40, which implies 11 times 2025 price/earnings and 6.0% dividend yield. The stock has experienced a 40% rally year to date, and we consider its shares as fairly valued now.