By Sherry Qin
China Feihe’s shares dropped early Friday after the maker of infant formula said it will report a net profit decline in the first half, as it faces challenges stemming from China’s low birth rate and intense competition.
China Feihe shares were last down 11% at 4.42 Hong Kong dollars, marking the biggest intraday drop since July 2022.
In a filing after the market closed Thursday, the dairy-product company guided for a net profit decline of 23%-36% on year. It expects first-half revenue of between 9.58 billion yuan (US$1.33 billion) and CNY9.87 billion, compared with CNY9.67 billion a year earlier.
China’s infant formula market is directly affected by China’s low birth rate. The number of newborns registered in China in 2022 was 9.56 million, down 10% from 2021. The market in China fell by 0.5% on year in 2022 and is expected to decline by 1.3% compounded annually over the coming five years, according to Euromonitor.
Feihe’s margins could come under pressure as price competition intensifies amid accelerated market consolidation in a weak macroeconomic environment, Bocom International said in a research note. Feihe has the highest margins in China’s dairy sector, but it had to lower prices of one of its Astrobaby Classic products recently.
It will be hard for China Feihe to achieve its full-year guidance of “double-digit percentage on-year growth,” as it implies second-half growth near 20% after flattish first-half sales, Bocom International analysts Edward Lui and Kay Tan said.
Write to Sherry Qin at sherry.qin@wsj.com
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