Company Reports

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in the company's traditional categories.

No-moat Uni-President China, or UPC, reported solid first-quarter results, with net profit excluding one-off non-operating gains growing 104% year on year, against a low base as pre-Chinese New Year stocking benefited fourth-quarter 2022 instead of first-quarter 2023. In addition, we saw strong double-digit top-line growth and margin expansion, driven by lower input costs, improved utilization, and reduced channel expenses. What stood out to us were the recent new-product launches, including sugar-free tea, milk tea, and juice, which we think could help UPC stay competitive in the long term. We raised our 2024 revenue and net profit projections by 1% and 12%, respectively, but left 2025-28 earnings forecasts largely unchanged. We retain our fair value estimate at HKD 6.60 per share, which implies 16 times 2024 price/earnings, 8 times enterprise value/EBITDA and a 6.7% dividend yield. The stock price had a decent runup following the 2023 results announcement, and we view the shares as fairly valued currently.

No-moat Uni-President China, or UPC, reported 2023 results that trailed our expectations on the top line and core operating profit, dragged by weaker-than-expected food segment sales and higher selling expenses. However, a one-off land sales gain and lower tax rate drove net income higher than our estimate. We reduced our five-year sales CAGR projection by 30 basis points to 3.7% as we project a milder recovery in instant noodles sales in 2024. The firm’s double-digit top-line growth target for 2024 is a tall order, in our view. We also lowered our 2024-28 net income forecasts by 1%-16% to account for a slower rebound in margins. As a result, we reduce our fair value estimate to HKD 6.60 per share, from HKD 7.20.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in the company's traditional categories.

No-moat Uni-President China’s third-quarter results trailed our estimates due to soft demand across the food and beverage segments. While we had projected revenue would trail management guidance, we still trim our 2023 and 2024 sales and net income projections to reflect weak results and more moderate growth next year. The company has made progress in scaling certain beverage and food products during the quarter, but momentum was insufficient to offset slowing demand for legacy products.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in Uni-President’s traditional categories.

No-moat Uni-President China’s, or UPC's, first-half 2023 results slightly missed our above-consensus estimates, but net profit was above Refinitive consensus estimate. We lower our fair value estimate slightly to HKD 7.50 per share from HKD 7.60, which implies 19 times 2023 earnings multiples, roughly in line with its five-year historical average. We continue to see the stock as undervalued and think UPC’s profit in 2023 could benefit from resilient beverage demand and alleviating input cost pressure. We like the company’s strategies in the beverage segment and think the headwinds in the food segment are mostly priced in.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in Uni-President’s traditional categories.

We attended an investor group discussion with the management of no-moat Uni-President Enterprises, or UPEC, in which the company laid out medium-term growth strategies for its major businesses, including narrow-moat President Chain Store, or PCSC, and no-moat Uni-President China, or UPC. The key message delivered was that revenue scale would be the primary target for UPEC across its major markets in food and retail businesses. We left our fair value estimates unchanged for the three companies under our coverage and consider Uni-President China shares to be moderately undervalued, whereas Uni-President Enterprises and President Chain Store shares are slightly overvalued.

We attended the investor day held by no-moat-rated Uni-President China where management updated us on the latest strategies for its food and beverage businesses. We are constructive on the company’s strategy to target green tea, ready meals, and the catering channel as key growth drivers over the medium to long term and we agree with management’s decision to increase channel expenditures in these segments. We moderately increased our steady-state sales growth forecasts for the food segment to account for the addition of ready meals in its portfolio, but our fair value estimate is unchanged at HKD 7.60 per share. We continue to see the stock as slightly undervalued.

No-moat Uni-President China posted first-quarter results that slightly missed our expectations on sales and margins. Net profit increased 48% year on year, but fell 30%, excluding one-off land sales gain. We have moderately lowered our top-line and net profit estimates for 2023, as a downward revision in the food segment more than offset a better outlook for beverages. Our fair value estimate remains unchanged at HKD 7.60 per share, which implies 16 times 2023 P/E and is broadly in line with its three-year average. We think the market could be concerned with the food business performance following first-quarter results. We consider the stock fairly valued at its current price, and may lack a near-term catalyst.

No-moat Uni-President Enterprises hosted an annual results joint meeting to recap 2022 results for its various subsidiaries including narrow-moat President Chain Store and no-moat Uni-President China. A key focus was its growth strategies for Uni-President China. We keep our fair value estimates unchanged for the three companies and retain our view that Uni-President China’s current strategies could support high-single-digit sales growth for 2023, but we remain cautious over it continuing such growth rates in the medium term. 7-Eleven in the Philippines is considered a key medium-term growth driver for President Chain Store, consistent with our view.

No-moat Uni-President China reported 2022 results that exceeded Refinitiv consensus estimates on revenue and met expectations on net profit. Channel expansion efforts boosted top-line growth in the fourth quarter, which also helped deliver a roughly stable gross profit in dollar terms versus last year despite rising input costs. We see channel penetration as the right strategy to drive profit growth in the medium term. Management reiterated the target to reach CNY 50 billion in sales within five years. We remain cautious as to whether this target (implied low-teens five-year CAGR) can be achieved and expect mid-single-digit CAGR instead. But we see high certainty in earnings rebound in 2023, thanks to the reopening of the economy and lower costs.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink, or RTD, tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in Uni-President’s traditional categories.

No-moat Uni-President China, or UPC, reported third-quarter numbers that missed our net profit estimates despite stronger-than-expected revenue growth. Higher costs drove net profit down 17% year over year, although cost pressure was somewhat alleviated sequentially from the first half of the year. We think UPC’s products are positioned at economy price points and hence should be defensive during a sluggish economy. The company appeared to also have prepared a product pipeline that could drive positive mix shift when consumers trade up again. Nevertheless, we expect near-term earnings to continue to be constrained by rising costs, potentially through early next year. Although we have raised our top-line sales estimates for 2022, we have trimmed our net profit forecasts for the year. Together with a negative impact from currency movements, we lowered our fair value estimate to HKD 6.90 per share (from HKD 7.20 per share), which represents an implied forward 2023 P/E of 18 times, slightly below the five-year average of 20 times. While near-term sentiment could be suppressed by weak earnings, the stock is moderately undervalued and we expect the company to be able to turn around more meaningfully next year as the cost and demand environment improves.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink tea in China. The company underwent a period of fast revenue growth in the early 2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in Uni-President’s traditional categories.

Uni-President China is the second-largest producer of instant noodles and ready-to-drink tea in China. The company underwent a period of fast revenue growth in the early-2010s and has transitioned to a more stable state in recent years. According to Euromonitor, its market share in instant noodles and RTD tea rank second after Tingyi, at around low-teens and midteens, respectively. However, new entrants emerging in ready meals and RTD drinks could gain share in Uni-President’s traditional categories.

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.

Uni-President China reported first-quarter 2022 net profit of CNY 329 million, falling 13% versus the same period last year due to continued pressure from rising commodity costs, especially palm oil and PET. Although revenue increased by high single digits year on year, gross margin fell at a single digit rate. Management continued to note there is no plan for direct price hikes but would manage its channel expenses, which we view as an initiative to gain share from peers. A first-quarter profit decline of 13% was slightly worse than our full year estimates of 10% drop. We think the recent omicron outbreak and continued lockdowns in various parts of China will pose headwinds to the company’s revenue in 2022, while logistics disruptions could also erode efforts to reduce channel expenses as a way to protect margins. We have lowered our gross and net margins estimates for the year to account for deteriorating operating environment but retain our fair value estimates at HKD7.2 per share. However, we do not see catalysts for the company’s stock in the near term.

The recent acceleration in commodity prices as a result of the Russia-Ukraine conflict has exacerbated the margin pressure on packaged food companies brought about by supply disruptions throughout 2021. Various food and beverage companies in China have engaged in price hikes since the third quarter last year to mitigate margin compression. We continue to highlight Yili as our top pick, with our fair value estimate at CNY 46 per share, as we think the premiumization trend and continued penetration of dairy products in China are unchanged. The raw milk cost curve continued to moderate in early March, which should mitigate margin pressure observed since the second half of 2021. Robust sales reported for January and February at 15% growth year on year also confirm our constructive view. We expect categories with more room to maneuver on premiumization and higher concentration of share to command stronger pricing power and face lower margin pressure in the near term.