Uni-President China H1 Profit Fell Sharply, but H2 Margins Should Improve; Retaining Our FVE

No-moat Uni-President China reported first-half results with high-single-digit top-line growth outpacing our estimates, but net profit fell short of our expectations. Net profit during the period fell 27% year on year as elevated palm oil and PET prices more than offset improved utilization, better product mix and reduced channel expenses. We increased our top-line estimates for the year but lowered gross margin outlook, leaving net income estimates broadly unchanged. We think UPC would likely see better margin levels in the second half as cost pressure and coronavirus-related demand recede. We maintain our fair value estimate at HKD 7.20 per share, which implies 21 times forward P/E, in line with the historical average. We believe the current share price is fairly valued and has mostly priced in suppressed earnings level in 2022, as the company should have sufficient room to achieve higher profits versus the first half.