Credit Suisse raised its target price for Want Want China (00151) to HK$7.3 from HK$6.36 and maintained its "neutral" rating.
The research house said Want Want's 1H FY2020 top line was a slight miss while the bottom line was above market expectation. The stronger-than-expected margin was mainly driven by VAT cut (since April-2019) and direct price hike (since July-2018), leading to a gross margin expansion of 4.4pp.
Management highlighted continuous effort on channel diversification to reach a broader customer base, which will serve as a new growth engine. However, with the absence of help from VAT cut and price hike, Credit Suisse sees limited margin potential for next year and onwards.
Credit Suisse lifted its earnings estimates by 6% assuming a higher margin.
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