Uni-President China: Green Tea, Ready Meals and Catering Channels as Key Medium-Term Growth Drivers

We attended the investor day held by no-moat-rated Uni-President China 00220 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.

For the second quarter, the company remains optimistic on beverage sales, but noted food sales were weaker than expected, likely due to dwindling stockpile demand and increased catering spending by consumers. Management highlighted its perspectives on medium-term growth drivers for Uni-President China during the discussion with a group of investors. The company is optimistic on its recently launched no-sugar jasmine green tea, which had a roughly 30% repurchase rate by its distributor partners year to date. We agree with the company’s approach to focus on its green tea lineups as Tingyi has a stronger brand in the Ice Tea segment. We believe the green tea lineups could help support the company’s sales growth for the tea category over the medium term, replacing its legacy offerings. We also think Uni-President China will continue to focus on the CNY 3 to CNY 4 priceband as it remains the largest segment in the ready-to-drink tea market in China (over 70% based on estimates by Uni-President China).