Translation: Original published in Finnish on 06/05/2026 at 06:57 pm EEST

HKFoods' earnings improvement streak continued in Q1. Operational earnings were largely in line with our expectations, as the strong performance of retail and food service supported revenue growth, and efficiency measures offset increased costs. As expected, the company reiterated its guidance for this year, and we kept our estimates practically unchanged. With our estimates assuming moderate earnings growth, the share's valuation (2026e: adj. EV/EBIT 9x) is neutral, and the expected return remains modest in our view over a one-year horizon. We therefore reiterate our Reduce recommendation and EUR 1.70 target price.

Operationally, earnings were largely in line with our expectations

HKFoods' Q1 was largely in line with expectations. Revenue grew by 3.8% to 243 MEUR, slightly exceeding our 240 MEUR estimate. Growth was primarily supported by volume growth driven by the retail and food service channels, which have a better margin profile, but industrial sales also saw growth. In contrast, export revenue decreased as planned, as pork sales were weighted towards the domestic market. Retail sales were particularly supported by the growth of HKFoods' own brands, and foodservice sales developed positively due to commercial measures and a comprehensive product portfolio.

The company's comparable EBIT strengthened to 5.7 MEUR in Q1 (Q1’25: 4.6 MEUR), exceeding our 5.1 MEUR estimate. However, operational development was largely in line with our expectations, as the beat was mainly due to lower depreciation than we estimated. As we expected, profitability was supported primarily by a more favorable sales mix and savings from the efficiency program, while rising beef procurement prices, as well as wage and energy costs, weighed on the result. In addition, reported EBIT was weighed down by 0.3 MEUR in restoration costs. On the lower lines, adjusted net income clearly exceeded our estimates, supported by lower net financial expenses and taxes than our estimates, as well as higher earnings from the associate.

Guidance was reiterated, and estimate changes remained minor

HKFoods reiterated its 2026 guidance in the report, expecting comparable EBIT to increase from 2025 (34.1 MEUR). Our estimate for this year is 35.3 MEUR, and it remained virtually unchanged. We estimate that HKFoods still has good prerequisites to grow its earnings due to continued efficiency measures and strengthening commercial performance. On the other hand, we believe the company is facing cost pressures due to the geopolitical situation and the conflict in the Middle East. As pricing periods for retail are rigid, it is difficult to pass on increased costs to prices before the fall. For the coming years, our estimates remained unchanged, and we still expect earnings growth to continue at a moderate pace, supported by an improved sales mix and efficiency measures. However, in our view, a more significant improvement in profitability would require either a more favorable demand environment or operational efficiency improvements.

Expected return remains weak for the time being

We see potential for HKFoods to be a defensive dividend company, but value creation is limited by the industry's moderate growth prospects and capital-intensiveness. With our estimates assuming moderate earnings growth, the share's earnings-based valuation (2026-2027e: adj. EV/EBIT ~9x and P/E 9-13x) is somewhat neutral. Thus, the expected return currently relies mainly on a dividend yield of around 5%. At the same time, uncertainty related to cost inflation increases the risk to earnings estimates over a 1–2 year horizon. In a positive scenario, a rapid de-escalation of the Middle East conflict and normalization of raw material flows could support stronger earnings development than we estimate, which would also turn the stock's expected return moderate again.