Haitian's Q2 Profit Growth Was Impressive, Should Sustain in the Medium Term; Shares Overvalued

Wide-moat Foshan Haitian Flavouring and Food reported strong earnings growth in the second quarter that exceeded the market’s and our expectations. The impressive performance again evidenced that Haitian’s strong competitive advantages continued to support revenue growth and improve profitability amid the coronavirus pandemic. Although the operation was affected negatively in the first quarter, the demand for sauces and condiments remained stable as the pandemic came under control. Thanks to the company’s efforts in expanding distribution and channel restocking from the catering services, Haitian’s revenue and profit year-on-year growth reaccelerated to 22% and 29% in the second quarter, respectively, from 7% and 9% in the first quarter.