UBS has issued a research report maintaining a "Buy" rating on CHINA FOODS (00506), with minor adjustments to its earnings forecasts and a reduction in the target price from HK$5.07 to HK$4.89. The report noted that CHINA FOODS achieved a 2.7% year-on-year increase in revenue last year, reaching RMB 22.07 billion, driven by resilient carbonated beverage sales, a recovery in water business revenue, and strong growth in energy drinks, partially offset by a decline in juice revenue. Gross profit margin fell by 0.7 percentage points to 37.1%, primarily due to an increased proportion of low-margin water products and rising aluminum can costs. Earnings before interest and taxes rose by 5.1% to RMB 1.925 billion, while net profit remained largely flat at RMB 862 million, mainly impacted by a higher tax rate. The dividend payout ratio was maintained at 50%.

The report highlighted that strong performance in carbonated beverages contributed to double-digit sales growth in the first two months of the year, indicating a robust start. PET costs have been locked in until the end of the third quarter, and price increases implemented in March for aluminum-can carbonated drinks, which account for 25% of revenue, are expected to support margin prospects. New channels, including vending machines, e-commerce, snack discount stores, and instant retail, demonstrated strong growth, with the company using differentiated packaging to minimize channel conflicts. Management anticipates long-term margin improvement through operational leverage rather than reductions in input costs.

UBS also pointed out that COFCO Group will promote a nutrition and health food strategy under the "15th Five-Year Plan," with CHINA FOODS leveraging its direct-to-consumer model and proprietary channels, such as approximately 130,000 vending machines, to distribute non-cola products. While the short-term impact on earnings is expected to be limited, this initiative could serve as a long-term growth driver.