Want Want To Benefit From Growth in Emerging Channels; Increasing FVE to HKD 6.90 per Share

Want Want China reported fiscal 2021 (ending March 31, 2022) revenue and net profit that are broadly consistent with our estimates. Gross and net margin fell slightly short of our expectations due to elevated input costs. We expect such headwinds to continue weighing on fiscal 2022 earnings (ending March 31, 2023) and drag margins slightly lower versus fiscal 2021. We raised our medium-term growth outlook based on management's latest updates regarding progress in emerging channels. We expect a CAGR of 3% in top-line and net income growth, respectively, through 2026 (versus 2% and 1% in prior estimates). We raised our fair value estimate to HKD 6.90 per share, which implies 17 times forward P/E. We think Want Want’s shares are fairly valued following the correction post earnings, which was likely due to worries on margin compression by higher costs. Near-term share price could be supported by the generous special dividend.