1、 June 2, 2010 China Foods Limited Uncertainty Still Remains Whats Changed Price Target HK$7.00 to HK$6.002010E/11E/12E EPS -9.5%, -12.7%, -16.9%Maintain EW: We have revised down our earnings forecasts for China Foods, given: 1) slower top-line growth, due to the channel restructuring in wine, which
2、we think could take time to complete, and lower-than- expected carbonated drinks sales earlier this year; and 2) continuous margin pressure, due to raw material price pressure. The share price has corrected 25% in the past two months (underperforming the HSI by 17%) on weak operations in 1Q10. We th
3、ink the current price has partially factored in the downside pressure, and we expect some recovery in the rest of this year. However, we suggest that investors wait for a more solid turnaround, which is still not clearly visible at the current point, in our view. At the same time, we think potential
4、 asset restructuring, which is highly expected by the market, will likely be a multi-year process, if it happens. Our new price target of HK$6.00 implies 25x 2010E P/E. 2010 Not An Easy Year: China Foods restarted distribution channel restructuring on wine earlier this year and continues to convert
5、its large-scale distributor- focused system to a more balanced system. We think this is unlikely to be completed quickly and could slow down sales momentum before the channel structure is successfully streamlined. We thus tune down our wine sales estimate by 8% in 2010. We also trim beverage sales b
6、y 5% on the difficult start for carbonated drinks due to the cold weather. We think unease remains over cost pressure, and that selling expenses will stay relatively high with increasing competition. We forecast earnings growth of 18% in 2010 (vs. 30% previously). Waiting for Better Times to Come: W
7、e remain positive on China Foods long-term growth prospects on back of robust demand growth in the wine and beverage business. We expect faster growth to kick in after 2010 at 25% in 2011E and 21% in 2012E. Morgan Stanley does and seeks to do business with companies covered in Morgan Stanley Researc
8、h. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of Morgan Stanley Research. Investors should consider Morgan Stanley Research as only a single factor in making their investment decision. For analyst certification and other imp
9、ortant disclosures, refer to the Disclosure Section, located at the end of this report. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, pu
10、blic appearances and trading securities held by a research analyst account. Morgan Stanley Asia Limited+ Lillian Lou Lillian.L +852 2848 6502 Dan Wang Dan.W +86 21 2326 0021 Angela Moh Angela.M +852 2848 5405 MORGAN STANLEY RESEARCH ASIA/PACIFIC Stock Rating Equal-weight Industry View Attractive Key
11、 Ratios and Statistics Reuters: 0506.HK Bloomberg: 506 HK China Food, Bev. 2) pricing pressure from intensified competition in the beverage business; and 3) a surge in the soft commodity business squeezing the margin of the consumer packed oil business. Upside risks include: 1) Successful branding a
12、nd promotion to achieve better wine sales growth; 2) further correction of soft commodity prices; and 3) better efficiency in channel management to hasten the turnaround of the confectionery business. Exhibit 9 China Foods: Forward P/E Bands China Foods024681012Mar-07Jun-07Sep-07Dec-07Mar-08Jun-08Se
13、p-08Dec-08Mar-09Jun-09Sep-09Dec-09Mar-1038x8x31x24x16xPrice HKD*Price as of June 1, 2010 Source: Bloomberg, company data, Morgan Stanley Research Exhibit 10 China Foods: Forward P/B Bands Price(HK$)-123456783/23/075/23/077/23/079/23/0711/23/071/23/083/23/085/23/087/23/089/23/0811/23/081/23/093/23/09
14、5/23/097/23/099/23/0911/23/091/23/103/23/105/23/101.5x 2.0x2.5x3.0x3.5xChina Foods1.0x*Price as of June 1, 2010 Source: Bloomberg, company data, Morgan Stanley Research Exhibit 11 P/E: China Foods vs. HS Index Forward P/E ratio0918273645Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul
15、-08Oct-08Jan-09Apr-09Jul-09Oct-09Jan-10Apr-10HS indexChina FoodsChina Foods vs HS Index*Price as of June 1, 2010 Source: Bloomberg, company data, Morgan Stanley Research 7 MORGAN STANLEY RESEARCH June 2, 2010 China Foods Limited Exhibit 12 China Foods: DCF Valuation 2010E 2011E 2012E 2013E 2014E 201
16、5E 2016E 2017E 2018E 2019E 2020ERevenue 21,229 25,956 31,139 36,753 42,640 48,500 54,338 59,975 65,125 69,557 73,029Revenue Growth (%) 26% 22% 20% 18% 16% 14% 12% 10% 9% 7% 5%EBIT 1,120 1,411 1,713 2,075 2,448 2,803 3,217 3,636 4,053 4,400 4,728EBIT Growth (%) 17% 26% 21% 21% 18% 15% 15% 13% 11% 9%
17、7%-Tax on EBIT (259) (348) (429) (562) (657) (746) (851) (957) (1,063) (1,151) (1,234) - D ; EW = Equal-Weight; UW = Underweight; NC = Not Covered by Morgan Stanley. 9 MORGAN STANLEY RESEARCH June 2, 2010 China Foods Limited Industry UpdateExhibit 14 Wine Production: Resuming Growth -20,00040,00060,
18、00080,000100,000120,000140,000Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-40%-20%0%20%40%60%80%100%120%TonsWineGrowthSource: China State Bureau of Stat
19、istics, Morgan Stanley Research Exhibit 15 CSD Production: Resuming Stable Increase Sparkling Drinks-200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,000Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep
20、-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-20%-10%0%10%20%30%40%50%60%Tons YoY GrowthSource: China State Bureau of Statistics, Morgan Stanley Research Exhibit 16 Bottled Water Production: Maintaining Good Growth Bottled Water-500,0001,000,0001,500,0002,000,0002,500,0003,000,0003,500,0
21、004,000,000Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-40%-20%0%20%40%60%80%Tons YoY GrowthSource: China State Bureau of Statistics, Morgan Stanley Res
22、earch Exhibit 17 Soft Drinks Production: Maintaining Good Growth Soft Drinks-1,000,0002,000,0003,000,0004,000,0005,000,0006,000,0007,000,0008,000,0009,000,000Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-
23、08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-20%-10%0%10%20%30%40%50%60%Tons YoY GrowthSource: China State Bureau of Statistics, Morgan Stanley Research Exhibit 18 Juice Production: Picking Up Momentum Juice-200,000400,000600,000800,0001,000,0001,200,0001,400,0001,600,0001,800,000Jan-05Mar-05M
24、ay-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-40%-20%0%20%40%60%80%100%Tons YoY GrowthSource: China State Bureau of Statistics, Morgan Stanley Research Exhibit 19 RTD
25、 Tea Production: Declines During Low Season -20,00040,00060,00080,000100,000120,000140,000Jan-05Mar-05May-05Jul-05Sep-05Nov-05Jan-06Mar-06May-06Jul-06Sep-06Nov-06Jan-07Mar-07May-07Jul-07Sep-07Nov-07Jan-08Mar-08May-08Jul-08Sep-08Nov-08Jan-09Mar-09May-09Jul-09Sep-09Nov-09Jan-10Mar-10-40%-20%0%20%40%60
26、%80%100%120%TonsRTD TeaYoY GrowthSource: China State Bureau of Statistics, Morgan Stanley Research 10 MORGAN STANLEY RESEARCH June 2, 2010 China Foods Limited Exhibit 20 China Market Shares Juice (Sales Volume) 33.0 33.218.617.016.616.216.7 16.514.714.216.620.4 20.429.730.231.731.24.04.45.14.1 4.03.
27、87.19.68.36.910.49.010.510.29.17.97.15.56.07.925.023.420.121.721.231.130.731.529.425.924.517.820.219.018.817.117.617.219.317.9 17.817.419.222.526.127.919.121.019.624.426.125.025.727.94.84.33.54.03.4 3.34.16.67.68.98.78.18.1 9.005101520253035Dec-Jan06Feb-Mar06Jun 06Aug-Sep06Dec 06Mar07Jun 07Sep07Dec
28、07Mar08Jun 08Sep08Dec 08Mar09Jun 09Sep09Dec 09%Uni PresWahahaHui CokeTingyiSource: ACNielsen, Morgan Stanley Research Exhibit 21 China Market Shares Tea (Sales Volume) 52.253.649.150.455.255.750.951.749.445.442.142.145.647.751.048.750.425.724.425.624.722.523.622.222.023.824.424.122.622.821.420.520.6
29、21.09.210.611.910.58.7 8.812.311.912.515.416.217.114.215.313.715.613.55.47.05.54.9 5.35.74.66.49.2 9.18.57.1 6.7 6.86.45.15.90102030405060Dec-Jan06Feb-Mar06Jun06Aug-Sep06Dec 06Mar 07Jun07Sep07Dec 07Mar 08Jun08Sep08Dec 08Mar 09Jun09Sep09Dec 09%TingyiUni PresWahahaCoca ColaSource: ACNielsen, Morgan St
30、anley Research Exhibit 22 China Market Shares Bottled Water (Sales Volume) 15.414.615.818.216.716.0 16.115.5 15.418.619.9 19.921.49.810.210.912.513.112.513.75.45.94.76.04.96.15.06.016.915.423.224.119.319.417.222.823.011.010.211.211.05.25.1 4.74.45.05.23.65.22.85.2 4.13.85.15.14.54.13.94.15.23.44.63.
31、53.83.43.50510152025Jun 07Sep 07Dec07Mar 08 Jun 08Sep 08Dec08Mar 09 Jun 09Sep 09Dec09%Coca ColaTingyiWahahaFarmers SpringYi BaoRun TianSource: ACNielsen, Morgan Stanley Research Exhibit 23 Sugar Spot Price USD/ton-2004006008001/1/037/1/031/1/047/1/041/1/057/1/051/1/067/1/061/1/077/1/071/1/087/1/081/
32、1/097/1/091/1/10CSCE Spot Price Nanning Spot Price2009 vs 2008China: +24%International: +36%10 YTD vs 09 AvgChina: +32%International: +23%Source: Bloomberg, CEIC, Morgan Stanley Research 11 MORGAN STANLEY RESEARCH June 2, 2010 China Foods Limited Exhibit 24 China Foods: Key Assumptions New Old Chang
33、e %2007 2008 2009 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012ESales (HK$ millions) 9,743 14,240 16,823 21,229 25,956 31,139 22,047 26,644 31,630 -3.7% -2.6% -1.6%Wine 2,140 2,790 3,197 3,673 4,311 5,016 3,975 4,704 5,453 -7.6% -8.4% -8.0%High end 250 346 483 680 840 1,021 892 1,148 1,396 -2
34、3.8% -26.8% -26.8%Mid end 533 692 743 989 1,223 1,486 969 1,217 1,480 2.1% 0.4% 0.4%Low end 1,335 1,611 1,971 2,004 2,248 2,509 2,114 2,338 2,577 -5.2% -3.9% -2.7%Bev 3,007 4,574 7,098 8,941 10,885 13,098 9,457 11,180 13,153 -5.5% -2.6% -0.4%Oil 4,158 6,512 6,008 7,954 9,978 12,133 7,954 9,978 12,13
35、3 0.0% 0.0% 0.0%Candy 437 365 520 660 782 892 660 782 892 0.0% 0.0% 0.0%Gross Profit 2,425 3,498 4,701 5,699 6,851 8,135 6,079 7,295 8,636 -6.3% -6.1% -5.8%Operating Profit 544 663 957 1,120 1,411 1,713 1,215 1,575 1,963 -7.8% -10.4% -12.8%Net Profit 361 483 569 668 836 1,013 738 958 1,220 -9.5% -12
36、.7% -16.9%New Old Change (ppt)2007 2008 2009 2010E 2011E 2012E 2010E 2011E 2012E 2010E 2011E 2012EGross margin 24.9% 24.6% 27.9% 26.8% 26.4% 26.1% 27.6% 27.4% 27.3% (0.7) (1.0) (1.2) Wine 52.5% 57.3% 58.0% 59.0% 58.3% 58.1% 59.3% 59.7% 60.3% (0.4) (1.4) (2.3) High end 67.7% 71.0% 74.0% 76.2% 76.2% 7
37、6.2% 76.2% 76.3% 76.6% - (0.0) (0.3) Mid end 62.6% 65.0% 70.3% 66.7% 66.7% 66.7% 66.7% 66.7% 67.1% 0.0 (0.0) (0.5) Low end 45.2% 47.3% 49.4% 45.3% 44.7% 44.2% 44.6% 44.1% 44.4% 0.7 0.6 (0.2) Bev 27.0% 27.3% 28.3% 26.9% 27.3% 27.5% 27.4% 27.9% 28.3% (0.5) (0.6) (0.8) Oil 7.1% 7.9% 9.7% 10.2% 10.0% 9.
38、9% 10.2% 10.0% 9.9% - - - Candy 44.5% 38.0% 49.0% 47.8% 47.2% 47.3% 47.8% 47.2% 47.3% - - - SG we correspond Equal-weight and Not-Rated to hold and Underweight to sell recommendations, respectively. 14 MORGAN STANLEY RESEARCH June 2, 2010 China Foods Limited Coverage Universe Investment Banking Clie
39、nts (IBC)Stock Rating Category Count % of Total Count% of Total IBC% of Rating CategoryOverweight/Buy 1079 42% 358 42% 33%Equal-weight/Hold 1111 44% 397 47% 36%Not-Rated/Hold 13 1% 3 0% 23%Underweight/Sell 349 14% 95 11% 27%Total 2,552 853 Data include common stock and ADRs currently assigned rating
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