CICC: Maintain Outperform rating for IFBH (06603), lower target price to HKD 19.5

CICC released a research report stating that based on the impact of Innococo on the 25-year base, the net profit of IFBH (06603) in 25/26/27 will be lowered by 12.2%/11.6%/11.7% to 23.34/29.90/34.90 million US dollars. The current stock price is trading at a valuation of 17.1/14.6 times P/E for 26/27 years. The target price was lowered by 11.36% to 19.5 Hong Kong dollars, corresponding to a valuation of 22.4/19 times P/E for 26/27 years, with a 31.05% upside potential compared to the current price. The industry rating of outperform is maintained. CICC's main points are as follows: Predicted profit compared to the previous year will decrease by 27%-32% The company announced its 2025 performance forecast, expecting a full-year net profit of -27% to -32% year-on-year to 22.65 million US dollars to 24.32 million US dollars. Adjusted net profit (excluding listing expenses and other fees) is expected to decrease by 25%-20% year-on-year, slightly lower than the bank's expectations. Growth of the IF brand, short-term channel adjustment by Innococo The bank expects a slight decline in the company's revenue in 2H25, with IF brand revenue expected to increase by 15%-20% year-on-year, still maintaining rapid growth. Due to a short-term channel adjustment, Innococo is expected to see a high double-digit decline in revenue in 2H25, putting pressure on the company's overall revenue. Looking ahead to 2026, with the trend of healthy beverage consumption, the bank believes that the coconut water industry still has the potential for double-digit growth. IF continues to enjoy industry dividends. The company actively responded to challenges by adding China Resources Cereals to distribute Innococo in 2025, and the bank expects that the channel adjustments will soon be completed. Exchange rate fluctuations + marketing spending, pressure on profits in 2H25 According to the company's performance forecast, the company's net profit in 2H25 is expected to decrease by -51% to -41% year-on-year to 7.68 million US dollars to 9.34 million US dollars, with a net profit margin decreasing by 9.3ppt to 11.3ppt to 9.2% to 11.2%. The bank predicts that the company's gross profit margin in 2H25 will continue the downward trend seen in 1H25, with sales and distribution costs also affected by exchange rate fluctuations. The bank expects an increase in marketing expenses in 2H25 due to the appointment of an Innococo brand ambassador and product promotions, despite a larger decline in Innococo revenue. As for administrative expenses, the bank expects some savings in 2H25 compared to 1H25, mainly due to a decrease in listing expenses. The bank expects the gross profit margin and distribution cost ratio to remain stable in 2026 as the company adopts financial instruments to deal with exchange rate fluctuations. After Innococo revenue rebounds, the marketing expense ratio is expected to decrease, leading to improved profit margins. Risk warning: risks include fluctuations in raw material prices, intensified competition, product quality and safety issues, reliance on sales channels, exchange rate fluctuations, dependence on a single product or market, and the risk of new product development falling short of expectations.