Want Want China (0151.HK): 1H FY3/24 sales in line

-1H sales grew 4% and net profit increased 9%

-No interim dividend, we expect a 5% yield for FY24E

Revenue grew 4% in 1H FY3/24. During 1H (Apr-Sep 23), Want Want achieved revenue of RMB 11.3bn (+4% YoY) and net profit of RMB 1.7bn (+9% YoY), in line with expectations. Benefiting from raw material price (palm oil/paper/tinplate) drop, GPM expanded by 2.4 ppts to 45.2%. OPM increased by 2.9ppts to 22%, thanks to better control in selling expenses. However, due to rate hike, net finance costs increased by RMB192mn, dragging net profit to RMB 1.7bn with NPM at 15.4% (+0.7pp YoY). Interim dividend is omitted.

Snack food down due to lower popsicles sales: Rice crackers sales increased 4% YoY to RMB2.1bn, mainly driven by overseas business and new channels expansion, both increased by double digits. Dairy products and beverage sales grew 7% to RMB6.1bn, still on track to recover (low base in 1HFY23). Revenue of snack foods dropped 2% YoY to RMB3.0bn, due to mid to high single-digit drop of popsicles.

Our views: We believe the demand for Want Want products remains solid in China. In fact, 1HFY24 sales nearly recovered to its record high (RMB11.4bn in 1HFY22). The product mix and sales channel improvement will drive topline growth. Also, better cost control and raw material price drop will continue to help on margin recovery. Despite the challenging consumption sentiment and macro environment, we expect a 5% Want Want’s dividend yield in FY24E.

Risks: 1) lower than expected raw material cost drop; 2) weaker than expected economy