Yanghe’s Q3 Growth Robust, Maintaining FVE at CNY 170 per share

Wide-moat Yanghe's decent third-quarter results were broadly in line with our expectations, which continue to reflect robust profit growth following a two-year consolidation of sales and distribution channels. In addition, gross margin also improved 952 basis points from the quarter prior, boosted by stronger sales growth of premium products, which is in line with our expectations and helped to ease market concern over slower sales growth of its premium Dream Blue M6+ and associated margin pressure. We maintain both our fair value estimate of CNY 170 per share, and our full-year recurring net profit forecast of CNY 9.4 billion, representing 25.5% year-over-year growth. We maintain our five-year recurring net profit growth CAGR of 12.8% between 2021 and 2026. We think the shares of Yanghe are undervalued as of market close on Oct. 28, amid a solid growth outlook through midcycle.