Anjoy Foods' 2Q26 revenue was in line, but earnings came under pressure, with raw material costs becoming the key variable for gross margin in 2H26

Overview

This report reviews Anjoy Foods' 2Q26 results and uses management commentary to assess growth, gross margin, product mix, channel investment, and overseas expansion in 2H26. Goldman Sachs believes core business growth remains broadly on track, but raw materials, expenses, and crayfish inventory disposal have increased earnings uncertainty. It therefore lowered its earnings forecasts and target prices while maintaining Buy on the H shares and Neutral on the A shares.

Core views

2Q26 revenue was broadly in line with expectations, but earnings lagged significantly. Sales were Rmb4,556m, up 14% yoy. Frozen rice and flour products, frozen hotpot ingredients, and frozen prepared dishes contributed approximately 12%, 45%, and 40% of sales, respectively, corresponding to Rmb527mn, approximately Rmb2,033mn, and Rmb1,813mn, down 10%, up 16%, and up 15% yoy, respectively. By channel, distributors, KA, catering, and e-commerce and new retail accounted for 75%, 5%, 8%, and 12% of sales, with revenue up 9%, 35%, 12%, and 39% yoy, respectively. Revenue was broadly in line with Goldman Sachs' forecast, but gross profit was only Rmb791m, implying a gross margin of 17.4%, 1.6 percentage points below Goldman Sachs' forecast. The earnings shortfall reflected the combined impact of gross margin, administrative expenses, the tax rate, and one-off items. 2Q26 operating profit was Rmb333m, with an operating margin of 7.3%, 1.9 percentage points below Goldman Sachs' forecast. The administrative expense ratio was 3.1%, down 0.1 percentage point yoy but 0.5 percentage point above expectations, while the selling expense ratio was 4.3%, down 0.7 percentage point yoy and 0.5 percentage point below expectations. The effective tax rate was 26.3%, above Goldman Sachs' forecast of 23.9%. Net profit was ultimately Rmb259m, down 8% yoy and 26% below Goldman Sachs' forecast; the net margin was 5.7%, 2.0 percentage points below expectations. Reported earnings were also affected by impairment and foreign-exchange losses. Inventory and goodwill impairment totaled Rmb103mn in 1H26, versus Rmb21mn in 1Q26, including Rmb46m of inventory write-downs and Rmb57m of goodwill impairment. Xinliuwu contributed Rmb57.12m of goodwill impairment and recorded a standalone loss of Rmb29m in 1H26. Foreign-exchange losses were Rmb36mn in 1H26. Management believes the goodwill impairment test was relatively prudent and does not expect further material provisions under the current earnings forecasts. Excluding the relevant one-off impacts, Goldman Sachs noted that the core business margin rose from 9.9% to 10.7%, and with revenue growth of 10%-15%, core net profit growth of more than 20% yoy remained on track. Growth targets remain unchanged for now, but the comparison base and cost pressures will increase in the second half. Management reiterated its conservative target of low-teens growth in FY26 core business revenue and said it was striving to achieve a higher stretch target. Despite a high base in August 2025, operating trends in August 2026 were reportedly more stable than in June and July. Goldman Sachs maintained its forecast of 4% yoy sales growth in 2H26 but cautioned that comparisons would become more difficult from September. The operating priority for 2H26 is to control selling expenses while maintaining growth and absorb the substantial 1H26 investments in e-commerce and new retail. Raw material procurement is the most important swing factor for gross margin in 2H26. Surimi costs increased approximately 2%-4% yoy and chicken costs rose approximately 15%, while procurement costs for pork and crayfish declined approximately 10% and 20%, respectively; overall manufacturing cost intensity remained stable. Excluding Xinliuwu, all subsidiaries recorded yoy gross-margin improvement, while Xinhongye also benefited from scale effects in customized products. Management emphasized that surimi supply was tightening and that ensuring supply during the peak season and maintaining supply stability had become as important as procurement prices. The company is strengthening supply through early investment in freshwater surimi and upstream acquisitions. In addition to surimi and chicken, labor, social insurance, and selective promotions will also affect profitability. Meanwhile, expanding scale and a higher proportion of high-margin products may continue to improve gross margins in key categories. Expense investment is shifting from expansion toward efficiency management. Investments in new retail and e-commerce drove higher selling expenses in 1H26, including more than Rmb20m in traffic-acquisition spending and more than Rmb10m in logistics investment. A higher social insurance contribution base increased 1H26 expenses by approximately Rmb20m-Rmb30m, or about 25%. Management believes this cost is manageable and helps employee retention. As growth shifts toward channels such as Sam's Club, the company has reduced promotional staff in weaker traditional KA channels and plans to strengthen cost control and resource-allocation efficiency in 2H26. The product-mix upgrade continues to be driven by fast-growing, high-margin core SKUs. All of the top ten SKUs achieved double-digit growth in 1H26. Revenue from fresh-lock packaging exceeded Rmb900m, up nearly 15% yoy, with a gross margin close to 50%. Within this, revenue from 400g fresh-lock packages approached Rmb100m, more than tripling yoy. Grilled sausages were the fastest-growing category, with revenue of Rmb261m, up approximately 50% yoy. The integrated Sausage Products Business Unit generated 1H26 revenue of Rmb620m, up 35% yoy, and aims to achieve tax-inclusive revenue of Rmb5bn within five years. Management expects lower costs, higher retail prices, process improvements, and a greater share of self-production to improve sausage margins, with additional support from higher-margin traditional hotpot sausages. Frozen prepared dishes also posted strong growth, with shrimp paste, beef and lamb rolls, crispy pork, and thousand-layer tofu all growing rapidly. Lamb-roll revenue was Rmb91m, up more than 80% yoy. Shrimp paste grew nearly 40% yoy, supported by its low-fat, high-protein positioning and fit with established consumption occasions; its gross margin is relatively high among prepared dishes and continues to improve. By contrast, frozen rice and flour products faced product homogeneity and demand pressure, underperformed expectations, and were overtaken by frozen prepared dishes, falling to become the company's second-largest business segment. Performance among new-style flour products was mixed: apart from steamed and pan-fried dumplings, which achieved double-digit growth, most products were flat or declined slightly, with some recording double-digit declines. Corn buns and orange-shaped buns together contributed more than Rmb20m of incremental revenue. Crayfish remained the main drag on earnings. This category has a lower gross margin during the peak season and is more vulnerable to price volatility. Xinliuwu recorded losses while clearing high-cost crayfish-tail inventory from 2025, and its distributor-led model is more sensitive to market-price fluctuations. Xinhongye, by contrast, expanded scale and improved margins through Hema, Walmart, and Sam's Club. Declining prices for crayfish and seasoned crayfish increased inventory write-down pressure, but management believes the relevant provisions may decline or be partially reversed as inventory is cleared in 3Q26. Operating priorities include reducing inventory, improving operations, strengthening coordination within the Aquatic Products Business Unit, reinforcing channels, and ensuring surimi supply. In terms of channels, traditional distribution remained the largest channel and achieved double-digit growth in 1H26. New retail and e-commerce grew 59% yoy, driven by traffic investment, price segmentation, and coordinated operations, and are expected to become the second-largest contributors to revenue and profit. Hema, Douyin, and Kuaishou were the main sources of growth, while Xinhongye also benefited from major customers such as Hema, Walmart, and Sam's Club. In response to competition, the company is optimizing distributor arrangements, product segmentation, channel policies, and exclusive partnerships. Management expects industry price competition to continue, but believes prices for some products are already near the bottom and that competitive intensity will not escalate significantly. Differentiated products, innovation, and high-margin blockbuster SKUs are expected to support overall profitability, although rapidly changing regional and category competition may still require selective discounts in 2H26. The overseas business remains in the capability-building phase rather than being a near-term earnings driver. From June to July 2026, more than 10 products obtained Halal certification for major Southeast Asian halal markets. The Henan plant is conducting trial production and has incorporated the relevant products into preliminary product and marketing plans. Halal food revenue is currently only several million renminbi, and domestic distributors have begun placing orders. At this stage, management places greater value on its role in preparing for future investment and expansion in Southeast Asia. Based on weak 2Q26 earnings, a more conservative raw-material outlook, and pressure from administrative expenses, Goldman Sachs lowered its 2026E earnings forecast by 7% to the Rmb16.6bn stated in the original report and reduced its overall 2026E-2028E net profit forecasts by 4%-8%. The 12-month A-share target price was lowered from Rmb102.0 to Rmb92.0, while the H-share target price was lowered from HK$95.0 to HK$86.0. The A-share target price remains based on a target P/E of 19 times 2026E EPS. The H-share valuation applies a 15% discount to the A-share multiple, based on the average H/A-share price discounts over the past three months for Midea's H shares, China Tourism Group Duty Free's H shares, and Tsingtao Brewery's H shares. Goldman Sachs also noted that, based on updated earnings forecasts, the H shares trade at approximately 12 times 2026E P/E and offer a 6% dividend yield, making their valuation more attractive. It therefore maintained Buy on the H shares and Neutral on the A shares.

Analysis framework

Goldman Sachs first compared 2Q26 revenue and growth by product and channel with its own forecasts, then decomposed the net profit variance into gross margin, expense ratios, the tax rate, asset impairment, and foreign-exchange losses. It subsequently incorporated information from management's results briefing to analyze the outlook for raw material supply and demand, product mix, channel investment, crayfish inventory, and overseas operations. Finally, it revised its 2026E-2028E earnings forecasts and calculated target prices using its existing P/E and A/H-share discount frameworks.

Methodology notes

• Company Fundamentals and Financial FrameworkEarnings Quality Analysis

  Separation of reported earnings and core business earnings

  The report separates one-off impacts such as inventory and goodwill impairment and foreign-exchange losses from core operating performance, illustrating that although reported net profit fell short of expectations, the core business margin and core net profit continued to improve.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Transmission of raw material supply and demand to gross margin

  The report tracks procurement costs and supply stability for surimi, chicken, pork, and crayfish, and analyzes how these changes affect 2H26 gross margin through unit costs, promotions, and product mix.

• Valuation MethodPE/PEG valuation

  Target P/E valuation

  The 12-month A-share target price is derived by multiplying Goldman Sachs' 2026E EPS by a target P/E of 19 times. Following the earnings forecast downgrade, the target price was correspondingly lowered to Rmb92.0.

• Valuation Method

  Relative A/H-share discount valuation

  The H-share target price applies a 15% discount to the A-share valuation multiple, based on the average H/A-share price discounts of comparable consumer companies over the past three months, resulting in a 12-month target price of HK$86.0.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Anjoy Foods A Shares (603345.SS)

  The A shares of the same operating entity; the report maintains a Neutral rating and lowers the 12-month target price.

  Strengths

  Improving core business margin, with continued growth in high-margin products and new channels.

  Weaknesses

  2Q26 net profit missed expectations, while raw materials, administrative expenses, and the crayfish business weighed on earnings.

  Comparison

  The target price uses a 2026E P/E of 19 times; compared with the H shares, the report considers the A-share valuation less attractive.

  Risks

  Frozen meal growth deviating from expectations, changes in consumer preferences, raw material cost volatility, food safety, and industry price competition.

• Anjoy Foods H Shares (2648.HK)

  The H shares of the same operating entity; Goldman Sachs maintains a Buy rating and considers their valuation more attractive than that of the A shares.

  Strengths

  Long-term market leadership, trading at approximately 12 times 2026E P/E based on updated forecasts and offering a 6% dividend yield.

  Weaknesses

  Operations face the same pressures from gross margin, expenses, impairment, and crayfish inventory.

  Comparison

  The target valuation applies a 15% discount to the A-share multiple, based on the average H/A-share price discounts of comparable consumer companies over the past three months.

  Risks

  Slower-than-expected frozen meal growth, changes in consumer preferences, rising raw material costs, food safety, and price pressure caused by intense competition.

Key data

• 2Q26 SalesRmb4,556mUp 14% yoy and broadly in line with Goldman Sachs' forecast
• 2Q26 Net ProfitRmb259mDown 8% yoy and 26% below Goldman Sachs' forecast
• 2Q26 Gross Margin17.4%Gross profit of Rmb791m, with gross margin 1.6 percentage points below Goldman Sachs' forecast
• 2Q26 Operating Margin7.3%Operating profit of Rmb333m, with the margin 1.9 percentage points below Goldman Sachs' forecast
• 2Q26 Net Margin5.7%2.0 percentage points below Goldman Sachs' forecast
• 2Q26 Effective Tax Rate26.3%Above Goldman Sachs' forecast of 23.9%
• 1H26 Inventory and Goodwill ImpairmentRmb103mnVersus Rmb21mn in 1Q26; includes Rmb46m of inventory write-downs and Rmb57m of goodwill impairment
• 1H26 Foreign-Exchange LossRmb36mnManagement said US dollar volatility increased foreign-exchange losses
• Core Business Margin10.7%Up from 9.9%; core net profit growth of more than 20% yoy remains on track
• 2H26 Sales ForecastUp 4% yoyGoldman Sachs maintained its previous forecast but noted that the comparison base would become higher from September
• Changes in Major Raw Material CostsSurimi +approximately 2%-4%; chicken +approximately 15%; pork -approximately 10%; crayfish -approximately 20%Yoy changes in procurement costs, an important variable for 2H26 gross margin
• 1H26 Fresh-Lock Packaging RevenueOver Rmb900mUp nearly 15% yoy, with gross margin close to 50%
• Grilled Sausage RevenueRmb261mUp approximately 50% yoy, making it the fastest-growing category
• 1H26 Sausage Products Business Unit RevenueRmb620mUp 35% yoy, with a five-year tax-inclusive revenue target of Rmb5bn
• New Retail and E-commerce GrowthUp 59% yoy1H26 data; expected to become the second-largest contributor to revenue and profit
• Earnings Forecast Revision2026E-2028E net profit forecasts cut by 4%-8%Reflecting lower gross margin, weak 2Q26 net profit, and a more conservative view of raw material costs
• A-Share Target PriceRmb92.012-month target price, previously Rmb102.0; based on 19 times 2026E P/E
• H-Share Target PriceHK$86.012-month target price, previously HK$95.0; Buy rating maintained

Impact & implications

The report believes that Anjoy Foods' core business growth and product-mix upgrade have not lost momentum, but earnings leverage in 2H26 will depend more heavily on surimi, chicken, labor, and promotional costs, as well as the progress of crayfish inventory clearance. High-growth products and new channels can support revenue and mix improvement, while expense efficiency and supply assurance will determine whether growth translates into profit. The earnings forecast and target-price reductions reflect near-term earnings pressure, but Goldman Sachs maintains its Buy rating on the H shares due to their valuation discount, approximately 12 times 2026E P/E, 6% dividend yield, and the company's long-term market leadership.

Risks

• Growth in the frozen meal business may be faster or slower than expected.
• Changes in consumer preferences may affect product demand and product-mix upgrades.
• Raw material costs above or below expectations may alter gross margin and earnings forecasts.
• Food safety incidents may affect the company's operations.
• Pricing pressure from intense industry competition may erode margins.

What to watch

• Monitor the actual impact of surimi supply, chicken prices, labor, and social insurance costs on gross margin in 2H26.
• Monitor whether 2H26 sales can achieve Goldman Sachs' forecast of 4% yoy growth against a higher comparison base from September.
• Monitor progress in clearing high-cost crayfish inventory in 3Q26 and whether inventory write-down provisions can decline or be partially reversed.
• Monitor whether rapid growth in new retail and e-commerce can translate into profit contributions after spending on traffic acquisition, logistics, and promotions is tightened.
• Monitor trial production at the Henan plant, orders for Halal-certified products, and the early development of the Southeast Asian business.