Translation: Original published in Finnish on 11/05/2026 at 08:40 am EET

The good Q3 report supports the narrative of the durability of HKFoods' earnings turnaround and the upward trajectory of its profitability. Operational earnings performance and falling financial costs push the earnings-based valuation multiples to quite attractive levels. In a positive scenario, profitability could improve even more significantly, although our estimates for the coming years include only moderate earnings growth. We reiterate our Accumulate recommendation and raise our target price to EUR 1.9 due to estimate revisions (was EUR 1.8).

Earnings growth continued despite African swine fever

The Q3 report was slightly better than our preliminary expectations, as ad. EBIT exceeded the estimate by 7%. The company continued its long growth path (adj. EBIT 12.4 MEUR, Q3’25: 11.8 MEUR), driven by factors such as a favorable momentum in the growing poultry and ready meal segments Total revenue growth was 3% and exceeded our estimate by 1 percentage point. The earnings impact of African swine fever on the company appears to have been small (estimated at ~1 MEUR for the entire H2). However, operating cash flow suffered from, among other things, the normalization of beef inventories and inflation (working capital committed YTD +15 MEUR y/y).

We see the trend remaining moderately positive

The company reiterated its guidance that adj. EBIT for 2026 grows from 2025. A good Q3 report reinforced the outlook for meeting the guidance, as adj. EBIT grew by 3 MEUR y/y in January-September, so there is no longer significant pressure on the Q4 result from a guidance perspective. According to the company, the cost pressure related to the rise in the oil price was passed on to sales prices at the end of the quarter. While we still see a minor question mark regarding how consumers will react to accelerating inflation, the pick-up in Finland's economy can support consumer purchasing power. We raised the adj. EBIT estimates by 4-5% for 2026-28e. We expect earnings and relative profitability will continue on a growth path, albeit more moderately. Growth in sales of further processed, higher value-added products and the continuous streamlining of operations support earnings growth.

The expected return consists of several components

In recent years, HKFoods has gradually turned into a defensive dividend company through an earnings turnaround and a strengthening of its balance sheet. Long-term value creation is limited due to the industry's modest growth prospects and capital intensity. Compared to our estimates for 2026, the valuation is fairly favorable (adj. EV/EBIT 2026e: 9x), and we suspect this estimate is not subject to significant uncertainty. We believe the company can continue moderate earnings growth in the coming years (4% p.a.), which, combined with the upside potential in valuation (~5%) and a strong dividend yield (>5%), offers an attractive expected return. We consider our current estimates to be relatively low-risk, and in a positive scenario, earnings growth could continue to be stronger than our estimates (EBIT-% 2027-28e 3.7% vs. 4-5% for competitors), which would have a significant leverage effect on the share price. This would at least require larger industrial investments than at present, which would have a negative impact on cash flow in the short term.

Prioritizing dividends in capital allocation raises the risk level

HKFoods’ balance sheet position is stable (net debt/EBITDA 2026e: 2.3x) and the recent refinancing of the bond will significantly decrease financing costs starting from Q4. However, we feel the balance sheet does not yet have a significant buffer to redeem the 20 MEUR hybrid loan (possible in August 2028). We believe it is possible that the company will continue to pay high dividends, which creates uncertainty regarding the building of buffers and the redemption of the hybrid. This may also limit the company’s investment capacity. In addition to the EUR 0.08 per share dividend distributed for 2025, the company's board has an authorization for a capital return of EUR 0.07, which is not included in our estimates.