High-end hopes: Feihe's half-year profit up 18% as it steps up consumer engagement

04-Sep-2024 - Last updated on 04-Sep-2024 at 02:43 GMT

A pregnant woman browsing infant formulas. ©Getty Images

Formula giant Feihe’s half-year profit for FY24 is up 18.1 per cent on the back of increased marketing activities which is said to have acquired over 1.4 million new customers.

This is a stark contrast from its FY23 full year results where profit shrunk 33.5 per cent due to systemic challenges arising from low birth rate.

The biggest infant formula milk player in China said half-year revenue for FY24 went up slightly by 3.7 per cent to RMB$10.1bn (US$1.4bn).

Profit for the period rose 18.1 per cent to RMB$1.9bn (US$269.5m).

Gross profit margin went up from 65.3 per cent to 67.9 per cent, mainly due to an increase in revenue from its Astrobaby product series.

Revenue from offline sales accounted for 76.8 per cent of its total revenue, said the company listed on the stock exchange of Hong Kong.

As of June 30, it is present in more than 80,000 retail points of sale that cut across maternity stores, supermarkets, and hypermarkets.

While acknowledging challenges from declining birth rate, the company has adopted a three-pronged approach in stepping up its consumer engagement.

This includes holding face-to-face seminars and roadshows, increasing its online interaction with consumers, and conducting targeted exposure on the media.

In the first half of 2024, it has conducted approximately 460,000 face-to-face seminars. It claimed that it has acquired over 1.43 million of new customers.

China has been battling with low birth rate. According to the National Bureau of Statistics, the country’s birth rate dropped from 10.94 per cent in 2018 to 6.39 per cent in 2023.

The number of newborns last year was approximately nine million.

Feihe also runs a health supplement business through Vitamin World USA which it acquired in 2018.

The subsidiary runs 40 specialty stores across the US as well as online channels.

However, revenue generated from this segment is small, accounting for only 0.8 per cent of its total revenue.

Factors stabilising China’s infant formula market

Despite the lower birth rate, Feihe believes that China’s infant formula market will remain stable, especially in the premium product segment where growth will be led by rising income.

China’s per capita annual disposable income last year was RMB$39.2k (US$5.5k), growing at a compound annual growth rate (CAGR) of 6.8 per cent, data from the National Bureau of Statistics showed.

The company believes this will drive the consumption of China’s high-end infant milk formula products.

“Due to increasing urbanisation, rising disposable income and growing health awareness, the demand for high-end infant milk formula products is expected to be the driving force of the overall infant milk formula industry in China,” the company said in its financial report.

With lower-tier cities and rural parts of China becoming wealthier and more urbanised, the company believes families in these regions will be able to afford higher-quality infant milk formula products.

“In general, these regions have larger populations and therefore higher potential for consumption growth,” said the company.