Dali Foods (3799:HK): Short to HK$4.18 on Expected Cost Increases (Full Note)

Chinese snack food and beverage maker Dali Foods Group (3799 HK) is well-loved by sell-side analysts, with 18 of 20 analysts rating the stock 'Buy' or 'Overweight'.

In contrast to the consensus 'bull' view of the company, we believe revenue growth is slowing and that core margins will soon come under intense pressure due to rising raw materials costs. As a result, our earnings estimates for Dali Foods are substantially lower than consensus.

Based on 13.5 times our 2019 EPS estimate, our target price for Dali Foods' shares is HK$4.18, about 23% below the closing price of HK$5.41 on February 1st.