Want Want China Earnings: Channel and Product Maneuver to Drive Top-Line Growth; Raising Valuation

Narrow-moat Want Want China’s fiscal 2023 (ending March 31, 2024) revenue and net income were below our estimates, but we observed constructive results in management’s channel execution and product development. We also see potential for the company to expand its presence in overseas markets. We think these could help Want Want to achieve higher long-term growth and thus forecast a fiscal 2024-28 sales CAGR of 3.9%, versus 3.1% during fiscal 2023-27. Our fiscal 2024-27 net profits are also increased by 4% to 8%. Consequently, we lift our fair value estimate to HKD 6.40 per share, from HKD 6.00, which implies 15 times fiscal 2024 price/earnings, 10 times EV/EBITDA, and a 5.1% dividend yield. We reiterate our view that shares are undervalued now as we think management’s execution could help the company to navigate through the current adverse operating environment.