Tingyi Earnings: Noodles Share Recovered, but Input Costs Could Still Weigh on Beverage Margins

Narrow-moat Tingyi 00322 posted first-half 2023 results that slightly outpaced our expectations, primarily due to better-than-expected margins in the instant noodles segment. However, we lower our fair value estimate to HKD 14.30 from HKD 14.90 on currency headwinds and lower midterm profit assumptions due to higher sugar prices. Otherwise, we maintain our view that the company should reach its 2023 sales and net profit guidance. We also retain our long-term view that volume in beverages and prices in instant noodles are key top-line growth drivers for Tingyi. Overall, we think the share price is attractive versus historical multiples. Management expects 100% payout over the next few years.

As we expected, the beverage segment was the driver for revenue growth in the first half of 2023, thanks to the water and juice categories. The instant noodle market faced headwinds during the period as catering channels reopened. But the company still delivered 3% sales growth thanks to price hikes. Notably, the segment’s sales and EBIT margin outpaced Uni-President China’s during the period, likely due to Tingyi’s more extensive distribution and consumers adapting to its higher retail prices. The company also observed continued market share recovery since the third quarter of 2022, following the plunge after the custard incident and price hikes in first-half 2022. Entering the third quarter, management highlighted an improvement in market demand in the broader instant noodle market in China.