Health and Happiness (H&H) International (1112) H1 2024 earnings summary

Executive summary

• Revenue declined 4.1% year-over-year to RMB6,692.1 million, mainly due to weakness in the infant milk formula (IMF) segment and high base effects in probiotics, while high-margin nutritional supplements grew to 66.1% of total revenue.

• Net profit dropped 49.7% to RMB305.8 million, with adjusted net profit down 32.4% to RMB347.2 million, impacted by lower BNC sales, one-off restructuring costs, and higher finance costs.

• Adjusted EBITDA fell 13.0% to RMB1,139.8 million, with a margin of 17.0%.

• Interim dividend of HKD0.30 per share declared, representing 50% of adjusted net profit.

• Nutrition supplement business achieved revenue and market share growth, now accounting for two-thirds of total revenue.

Financial highlights

• Group revenue for H1 2024 was RMB6,692.1 million, a 4.1% decline year-over-year.

• Gross profit decreased 4.5% to RMB4,072.3 million; gross margin slightly down to 60.9%.

• Adjusted EBITDA margin remained healthy at 17.0%, despite a 13.0% decline in adjusted EBITDA.

• Inventory turnover days improved from 174 to 146, with inventory balance reduced from RMB2.7 billion to RMB1.9 billion.

• Net cash from operating activities surged to RMB1,052.5 million, aided by improved working capital.

Outlook and guidance

• Full-year 2024 revenue expected to be stable, slightly below previous low single-digit growth guidance.

• Adjusted EBITDA margin guidance maintained at mid-teen level for the full year.

• ANC segment targets high single-digit to double-digit revenue growth and over 20% adjusted EBITDA margin.

• BNC segment expects around 20% revenue decline for the year, with low to mid-teens EBITDA margin.

• PNC segment targets high single-digit to low-teen revenue growth, with mid-single-digit EBITDA margin, aiming for double-digit margin in three years.

• Continued deleveraging and capital structure optimization planned, with net leverage targeted to close 2024 near 3x.