On May 20, Vitasoy International (00345. HK) has a big surprise for investors. In early trading today, Vitasoy's share price changed its previous decline and opened higher, soaring 15.5% at one point. As of the close, it was at HK$7.25, an increase of 11.54%.
On the news side, Vitasoy International announced that it expects the net profit attributable to the parent company for the financial year ending March 31, 2024 (FY2024) to be HK$106 million to HK$126 million, an increase of about 132% to 176% year-on-year.
As for the reasons for the sharp increase in profits, Vitasoy International said in the announcement that this was due to the company's improved sales execution in the mainland market, effective management of trade promotion and operating expenses, and improved business efficiency, which led to a significant increase in the operating profit of the mainland business, driving the company's overall profit growth. In addition, excluding the Coronavirus Disease 2019-related government subsidies received in the previous financial year, the operating profit of the Hong Kong SAR business recorded a significant increase, attributable to the increase in sales volume and the effective management of raw material costs and operating expenses.
Founded in Hong Kong, Vitasoy International is a long-established brand that has been producing and distributing plant-based foods and beverages for more than 80 years, but its development is closely related to the mainland market. According to the financial report, the mainland business has long accounted for more than 60% of Vitasoy's total revenue.
However, in July 2021, Vitasoy International was caught up in a high-profile public storm and was criticized by netizens, resulting in a heavy blow to its brand reputation in the mainland market.
In the aftermath of this incident, Vitasoy International's performance in the mainland market has suffered a heavy blow. According to the financial report, in fiscal year 2022, Vitasoy International's revenue in the mainland market plummeted by 23%, while the net profit attributable to the parent company suffered a loss of HK$159 million, the first loss in 26 years since its listing.
Subsequently, Vitasoy International continued to try to restore the market through product innovation and marketing, and the company's business situation gradually improved through the comprehensive implementation of a number of measures.
In FY2023, Vitasoy International achieved a turnaround. However, due to challenges such as weak consumer sentiment, intensified market competition and intensifying cost pressures, sales revenue in the mainland market is still difficult to be optimistic and tends to decline. By the middle of the 2024 financial year, Vitasoy International's revenue in the mainland market was still down 11% year-on-year (in Hong Kong dollar terms), but fortunately, the earnings performance was gratifying, with a year-on-year increase of 36%.
It is true that Vitasoy International has successfully achieved a turnaround in its performance by significantly improving its profitability in the mainland market, as well as implementing a rational allocation of expenses and effective control of operating costs, and is gradually showing a good momentum of improvement.
However, from the perspective of revenue, Vitasoy is still in the recovery stage in the mainland market. If Vitasoy International wants to fully recover the mainland market and return to its former glory, it will take a period of hard work and accumulation.
Author: Bottle