China Feihe stock downgraded by Citi on weak profit outlook

Citi downgraded China Feihe (HK:6186) to Neutral from Buy, cutting its price target, following preliminary H1 2025 results that significantly missed expectations, showing a 36-47% year-over-year net profit decline and 8-10% revenue decrease. This underperformance is attributed to intensified competition from infant milk formula subsidy programs amid soft demand. Citi anticipates near-term negative share price pressure and has initiated a 30-day downside catalyst watch, noting limited new upside catalysts for the stock.

Analysis

Citigroup has downgraded China Feihe Limited to Neutral from Buy, concurrently slashing the price target to HK$5.50 from HK$7.10, signaling a significant deterioration in the company's outlook. This revision is a direct result of Feihe's preliminary first-half 2025 results, which projected a substantial year-over-year net profit decline of 36-47% and a revenue decrease of 8-10%, figures that fell materially short of analyst expectations. The underperformance is attributed to unexpectedly intense competition from subsidy programs initiated by rival infant milk formula producers, which, compounded by soft consumer demand, has led to margin contraction. A key market dynamic highlighted is that customers receiving free products through these programs are engaging in secondary exchanges, allowing them to acquire their preferred brands and thereby directly eroding Feihe's sales. While the company's dividend yield and share buybacks may provide some limited support for the stock price, Citi has initiated a 30-day downside catalyst watch, indicating a high probability of near-term negative performance and noting a lack of meaningful upside catalysts on the horizon.

Key Decisions for Investors

• Given the severe earnings warning and Citi's initiation of a 30-day downside catalyst watch, investors should be prepared for near-term share price volatility and may consider reducing exposure to mitigate downside risk.
• Monitor the competitive intensity within the infant milk formula market, particularly the scale and duration of rival subsidy programs, as this is the primary driver of Feihe's current margin and revenue pressure.
• While fundamentals are weak, investors should evaluate the potential support from the dividend yield and share buyback program, which could offer a floor to the stock price, but acknowledge that new upside catalysts appear limited.