Expect Uni-President Enterprises to See Earnings Turnaround in 2023

No-moat Uni-President Enterprises 1216, or UPEC, reported 2022 revenue that exceeded our expectations as the mainland China subsidiary, Uni-President China, or UPC, ramped up volume sales through channel expansion. Net income missed our below-consensus estimates, however, due to inflationary pressure on the food business across Taiwan and mainland China, as well as lower-than-expected profit in the upstream container segment. But we think UPEC could continue to benefit from volume momentum in mainland China this year, thanks to reopening and channel expansion efforts. Lower input costs could also drive margin recovery for 2023. As a result, we raise our top line and net income estimates for the year, and raise our fair value estimate to TWD 68 per share (from TWD 67).

Our fair value implies 17 times 2023 P/E and 7 times EV/EBITDA, which is broadly in line with its three-year average. The company increased its dividend payout ratio in 2022 despite a double-digit decline in net income. We forecast a flat dividend in 2023, which implies 4.6% yield and should provide another support to share price at its current level.