HSBC Qianhai Securities Limited: HSBC Qianhai: Haitian Flavouring’s third-quarter profit under pressure; earnings forecasts cut for the next three years

What were the main changes in the third quarter?

Haitian Flavouring’s revenue rose 0.1% year on year in the third quarter of 2026, slowing from the first and second quarters. Revenue was broadly in line with HSBC Qianhai’s expectations, while net profit fell short of the bank’s forecast.
Net profit fell 15.4% year on year. Gross margin declined to 37.3%, down 2.3 percentage points year on year, while net margin fell to 18.6%, down 3.4 percentage points. HSBC Qianhai attributed this mainly to rising raw material prices: average soybean and PET prices rose 8% and 31% year on year, respectively, in the third quarter.

HSBC Qianhai believes the company’s shipments may have been weak, particularly through the foodservice channel. Domestic consumption and foodservice are still recovering, with retail sales and foodservice revenue up 1.1% and 2.4% year on year, respectively, in the first three quarters of 2026.
The company is also placing greater emphasis on maintaining healthy inventories. HSBC Qianhai expects that, if inventories are low at the end of 2026, downstream restocking demand could drive revenue growth of 5.1% in 2027, above the bank’s forecast of 2.9% for full-year 2026.

Given weak domestic consumption and persistent cost pressure, HSBC Qianhai cut its revenue forecasts for 2026–2028 by approximately 4%, 6.5% and 6%, respectively, and lowered its gross margin forecasts for the same period by 1.5, 2.1 and 1.8 percentage points.
Following the cuts to its revenue and gross margin forecasts, the bank lowered its net profit forecasts for 2026–2028 by 12%, 14% and 12%, respectively. The revised forecasts are approximately 9%–11% below the Visible Alpha market consensus, mainly because the bank is more cautious about margins amid cost pressure.
For near-term operations, HSBC Qianhai expects revenue and net profit to fall 1% and 8.5% year on year, respectively, in the fourth quarter of 2026, implying a 1.3% year-on-year decline in full-year net profit.

HSBC Qianhai maintained its Hold ratings on the A-shares and H-shares, cutting their target prices from 39.70 yuan to 31.30 yuan and from HK$37.00 to HK$28.70, respectively. The bank believes domestic consumption has yet to show a clear turnaround and that cost pressure will continue to affect margins.
The company has announced plans to repurchase 1 billion–2 billion yuan of A-shares and up to 500 million Hong Kong dollars of H-shares. HSBC Qianhai believes improved shareholder returns can provide downside support; the bank also considers the A-share valuation to be at a historical low.