Goldman Sachs: Upgraded China's Feihe (06186) rating to a “buy” target price of HK$7.4

The Zhitong Finance App learned that Goldman Sachs released a research report saying that based on the following factors, the bank's fundamental views on China's Feihe (06186) are more positive: 1) the outlook for the infant formula industry is stabilizing in 2025-2027; 2) Feihe has significant market share advantages in offline and online channels, and has made solid progress in penetrating higher tier regions; 3) Continued high-end strategy supports more stable profit margin prospects. According to this, the bank raised the Feihe rating from “neutral” to “buy”, with a target price of HK$7.4 for the new 12 months, mainly based on: 1) raising the profit forecast (total net profit increase of 46% after 2027); 2) increasing the target price based on 1.5 times the market sales rate in 2026 (1.0 times the previous one), with a potential increase of 18% (average coverage area of -4%).

According to the report, based on the bank's recent high-frequency tracking data and population models, combined with case studies on Japan/South Korea's historical maternity allowance policies, the bank slightly raised its sales forecast for the 2025-2027 infant formula industry due to the narrowing decline in offline channels and positive growth in online channels. The industry's growth prospects are expected to stabilize, with sales falling 3.2% year-on-year in 2025 (-4%/-14% in 2024/2023, respectively) and -2.5%/-0.7% in 2026/2027, respectively. The year-on-year decline in the population aged 0-4 is expected to gradually narrow to 5%/4%/4% in 2027 (a rapid double-digit decline in 2020-2024), indicating a reduction in sales pressure in the infant formula industry. A more stable industry outlook will benefit dairy companies. Among them, Yili (infant formula business accounts for 21% of sales) and Feihe (92%) have the highest related business exposure, followed by Mengniu (4%).