Shares of China Feihe, a leading maker of infant formula, experienced a significant drop on Friday following the company's announcement of a decline in net profit for the first half of the year. The company attributed this decline to challenges arising from China's low birth rate and intense competition in the market.
At the close of the market on Thursday, China Feihe filed a report stating that it expects a net profit decline of 23% to 36% compared to the previous year. Additionally, the company projected first-half revenue to be between 9.58 billion yuan (US$1.33 billion) and 9.87 billion yuan, slightly lower than the previous year's 9.67 billion yuan.
China's infant formula market is directly impacted by the low birth rate in the country. In 2022, the number of newborns registered in China was 9.56 million, a 10% decrease from the previous year. According to Euromonitor, the market declined by 0.5% in 2022 and is expected to continue declining at a compounded annual rate of 1.3% over the next five years.
Bocom International noted in a research note that Feihe's profit margins may face pressure due to intensified price competition and increased market consolidation in a weak macroeconomic environment. While Feihe currently boasts the highest margins in China's dairy sector, it recently had to lower prices for one of its Astrobaby Classic products.
Given the challenges faced in the first half of the year, Bocom International analysts Edward Lui and Kay Tan are skeptical that China Feihe will be able to achieve its full-year guidance of "double-digit percentage on-year growth." This would require significant growth in the second half of the year following nearly stagnant first-half sales.
Overall, China Feihe's shares experienced an 11% decline, the largest intraday drop since July 2022.