Guotai Haitong Securities has released a research report initiating coverage on Natural Food IH (01837), forecasting earnings per share of RMB 0.14, 0.17, and 0.21 for the years 2026 to 2028. Based on comparable valuations, the firm has applied a 15x price-to-earnings ratio for 2026 estimates, arriving at a target price of HK$2.44 per share. The coverage initiation is accompanied by a "Buy" rating.
The bank's analysis highlights the company's position as a pioneer in China's grain powder market and a leader in the "medicine-food homology" sector. It notes the company's distinct competitive strengths across multiple dimensions, including brand, product portfolio, distribution channels, and supply chain. Against the backdrop of accelerating growth in the traditional Chinese health food industry, the report suggests that the company, driven by its core products, is well-positioned to capitalize on multiple consumption scenarios and omnichannel strategies, indicating robust growth momentum and significant long-term potential.
Key Points from the Report
Accelerating Growth in Traditional Health Foods and Branding Potential
The "Healthy China 2030" initiative explicitly promotes "guiding reasonable diets" and "giving full play to the unique advantages of traditional Chinese medicine." The expansion of the official "medicine-food homology" substance list to 106 items has further opened the market for traditional Chinese health foods. Additionally, China's aging population rate is projected to rise from 15% to 30%, while increasing interest in dietary therapy and nourishment among younger consumers is expected to continuously expand the relevant consumer base. As industry concentration increases, the potential for category branding is substantial.
Expert Brand with Strong Fundamentals and Multi-dimensional Competitiveness
The company is recognized as the pioneer of grain-based health powders and has successfully established the "Natural Food IH" brand as an expert in the medicine-food homology segment. Its financial performance has demonstrated steady growth over the past decade. Leveraging strong product efficacy and pricing advantages supported by its proprietary formulations, ingredient sourcing, and processing techniques, the company has built significant brand trust and customer loyalty. It is currently evolving from selling grain powders to providing functional, scenario-based solutions. Building on its core product, the walnut, sesame, and black bean powder, the company is actively cultivating new growth drivers such as its "Wet No Trace" product line. Considering the existing market size for black sesame and soybean milk powders alone, the company's revenue still has considerable room for expansion.
Omnichannel Strategy to Capture Traffic Opportunities
1) Offline direct-operated counters represent the company's core channel strength, facilitating sales and brand equity accumulation through nutrition consultation, on-site grinding services, and strategic scene-based layouts. Following a period of adjustment, these counters are now entering a renewed growth phase and are set to benefit from ongoing reforms and opportunities within the supermarket sector.
2) The company possesses a deep understanding of e-commerce, creating a closed-loop channel system integrated with its offline counters. It has consistently capitalized on opportunities presented by new platforms, resulting in sustained rapid growth in its e-commerce business over the past ten years.
3) With a long-standing partnership with Sam's Club, the company's new channel business is poised to benefit from the thriving membership warehouse club trend.
High-Standard Supply Chain Supports Sustainable Development
The company's commitment to a supply chain anchored by three self-operated factories, patented grinding technology, and selective sourcing of raw materials from specific producing regions underpins its long-term sustainable development.
Risk Factors
The report outlines several potential risks: (1) food safety issues, (2) weaker-than-expected demand or new product performance, (3) intensifying competition, (4) volatility in raw material prices, and (5) lower-than-anticipated efficiency in expense investments.