Want Want China: Lower Input Cost a Tailwind to Fiscal-Year 2023 Margins; Shares Undervalued

Narrow-moat Want Want China reported fiscal 2022 (ending March 31, 2023) results that slightly missed our estimates on the top line but met our expectations on operating profit. The dairy segment dragged revenue, but moderating input costs pressure lifted fiscal second-half gross margin. We left our fiscal 2023 (ending March 31, 2024) revenue and operating profit estimates largely unchanged despite the revenue miss. In our view, Want Want should face a favorable input cost environment as palm oil and milk powder prices moderate. The firm also delivered steady progress in transitioning to emerging channels and new products. We retain our HKD 6.0 per share fair value estimate, which implies 16 times 2023 P/E and is broadly in line with its three-year average. We think Want Want is poised to see margin expansion in the upcoming fiscal year, and shares are undervalued.