Want Want Earnings: Cost Control Drove Better Profit; Lower Input Costs a Tailwind for Fiscal 2023

Narrow-moat Want Want China's fiscal 2023 (ending March 31, 2024) interim results were broadly in line with our expectations thanks to stable top-line growth and alleviating input costs. Operating profit rose by 20% year on year as the company improved channel efficiencies. We left our fiscal 2023 forecasts largely unchanged and retain our fair value estimate of HKD 6.00 per share, which implies 16 times fiscal 2023 price/earnings and 9 times EV/EBITDA. We think its shares are undervalued, with market's concern about slower medium-term growth priced in. In our view, the adverse impact from its reliance on legacy products is not new. We expect Want Want to modestly refresh its portfolio and enter new channels to protect its current margins, but such an approach would result in muted top-line and profit growth.