CICC has reiterated its "Outperform" rating on Want Want China (00151) with a target price of HK$5.83, citing the company's strong brand power despite a 7.8% YoY decline in net profit attributable to shareholders in the first half of FY25. Revenue showed modest growth, though dairy and beverage sales dipped slightly due to rising costs and weak demand, while snacks and emerging channels performed well. Key takeaways from CICC's analysis include:

**1HFY25 Performance: Slightly Below Expectations** Want Want China reported 1HFY25 revenue of RMB11.108 billion (+2.1% YoY) and net profit of RMB1.717 billion (-7.8% YoY), marginally below market expectations due to higher-than-expected operating expenses.

**Business Trends: Snacks Outperform Dairy, Emerging Channels Grow Strongly** Revenue growth remained steady, with rice crackers/snacks rising 3.5% YoY, dairy/beverages falling 1.1%, and leisure foods up 7.7%. Highlights: 1) Rice cracker sales grew mid-single-digit, with new products contributing double-digit revenue share. 2) Dairy faced pressure from weak demand (Want Want Milk revenue down low-single-digit), though beverage sales surged ~40% with volumes doubling, driven by emerging channels like snack retail, e-commerce, and OEM (revenue up 100%+). 3) New products accounted for nearly 25% of leisure food revenue, while ice cream sales grew mid-teens. By channel, traditional/modern sales dipped low-single-digit, overseas markets grew low-single-digit, and emerging channels expanded rapidly, led by snack retail.

**Margin Pressure from Costs and Restructuring** Gross margin fell 1.1ppt YoY due to higher imported milk powder and palm oil costs, product mix shifts, and rising emerging channel share. Segment margins: rice crackers (+1.3ppt), dairy (-2.5ppt), leisure foods (+1ppt). Distribution/administrative expense ratios rose 1.4/0.9ppt YoY on increased marketing and staffing costs post-divisional restructuring, driving operating/net margins down 3.0/1.7ppt.

**Outlook: Steady Growth, Continued Investment** CICC expects softer 3QFY25 sales due to Lunar New Year timing but forecasts steady H2 revenue growth, with snack retail likely sustaining rapid expansion. Margins may stabilize sequentially, though the company is expected to maintain spending to boost new products and channels.

**Risks**: Weak demand, intensifying competition, and sharp raw material price hikes.