Translation: Original published in Finnish on 8/6/2026 at 8:40 am EEST.

The realization of the 2026 guidance, which anticipates rising earnings, appears fairly secure based on a stronger-than-expected H1. However, we expect earnings growth to stop in H2 due to, for example, the export effects caused by African swine fever and the potential strengthening of cost inflation. Overall, the company still appears to be finding ways to strengthen its profitability, against which the current valuation seems favorable. We raise our recommendation to Accumulate (was Reduce) and raise our target price to EUR 1.80 (was EUR 1.70).

Broad-based growth, slight earnings beat

Q2 revenue and comparable EBIT were slightly stronger than our expectations. Revenue grew by 5%, driven by typical growth segments as well as the increased price and improved availability of beef. The gross margin strengthened by 0.4 percentage points year-on-year to 8.4%. The improvement in profitability stemmed from the earnings growth of the company's partly owned subsidiaries and efficiency measures in its wholly owned units. Adjusted EBIT improved by 19% year-on-year to 7.7 MEUR, exceeding our forecast by 9%. Cash flow from operating activities weakened frrom the comparison period as inventory levels normalized with improved beef availability. Net debt increased slightly year-on-year, but its ratio to EBITDA decreased to 2.4x.

We anticipate earnings growth to slow in H2 but to resume in 2027

HKFoods reiterated its guidance for 2026 and still expects comparable EBIT to strengthen from the previous year. There are good prerequisites for the guidance, as the adjusted EBIT has already strengthened by 2.4 MEUR during H1. In our view, the Finnish demand picture is relatively positive compared to recent years. However, the increase in fuel and packaging material prices due to the Middle East conflict is likely to intensify in H2, putting pressure on margins. At the same time, the discovery of African swine fever (ASF) in Virolahti may weaken exports, although it does not affect intra-EU sales. HKFoods stated that exports to non-EU countries, with the exception of China and Japan, can likely resume soon. The company expects a negative EBIT impact of approximately 1 MEUR from ASF for 2026. We slightly raised (2%) our adjusted EBIT forecast and now expect it to reach 35.8 MEUR, representing an increase of just under 2 MEUR for the full year. The forecast assumes earnings growth will stop in H2. The automation investment for the cutting plant and the tempering line at the Forssa plant will be completed by the end of the year, driving efficiency-led earnings growth again in 2027.

We consider the valuation attractive

HKFoods has in recent years gradually developed into a defensive dividend company through an earnings turnaround and a gradual strengthening of its balance sheet. However, long-term value creation is limited due to the industry's modest growth prospects and capital intensity. The valuation is quite favorable when measured against our current year estimates (adj. EV/EBIT 2026e: 9x), even though our forecasts assume earnings growth will temporarily slow down in H2. However, we believe the company has good opportunities to continue moderate earnings growth in the coming years (3-4% 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 forecasts, which would have a significant leverage effect on the share price. Profitability rising to the level of competitors would imply strong upside potential, although we see this as unlikely to materialize. This would at least require larger industrial investments than at present, which would have a negative impact on cash flow in the short term.