China Feihe, a leading manufacturer of infant formula, is set to report a decline in net profit for the first half of the year. This news has caused a drop in China Feihe’s shares, with the stock down 11% as of early Friday.
The decline in profit can be attributed to several factors. Firstly, China’s low birth rate is affecting the demand for infant formula products. In 2022, the number of newborns registered in China decreased by 10% compared to the previous year. As a result, the overall infant formula market in China fell by 0.5% in 2022 and is projected to decline further, with an annual compound decline of 1.3% over the next five years.
In addition to the low birth rate, China Feihe is also facing intense competition in the market. Price competition has intensified, leading to pressure on the company’s margins. Bocom International, a research firm, highlighted this issue, stating that Feihe’s margins could come under further pressure due to the ongoing price competition. The company has already had to lower the prices of one of its Astrobaby Classic products recently.
Despite these challenges, China Feihe had set a full-year guidance target of double-digit percentage year-on-year growth. However, analysts at Bocom International believe that achieving this target will be difficult. The company would need to achieve significant sales growth in the second half of the year, following relatively flat sales in the first half.
China Feihe’s shares dropping significantly reflects the concerns in the market regarding the company’s performance. The decline has raised doubts about the feasibility of achieving the full-year growth target. As a result, analysts are emphasizing the challenging macroeconomic environment and the need for China Feihe to navigate the intense competition to regain growth momentum.
In conclusion, China Feihe is facing a decline in net profit for the first half of the year due to China’s low birth rate and intense competition in the infant formula market. The company’s shares have dropped significantly, indicating the market’s concerns about its performance. Achieving the full-year growth target will be challenging, and China Feihe will need to focus on strategies to address both the low birth rate and intense competition in order to regain growth momentum.
