20171114-交银国际证券-康师傅控股-00322.HK-Raise_TP_but_remain_cautious_on_beverage_profitability_5页_1014kb

Tingyi (322 HK) Summary

Core Content

Tingyi is a Hong Kong-listed company primarily operating in the consumer sector, with a focus on bottled water, instant noodles, and beverages. The report outlines the company's financial performance, strategic shifts, and valuation analysis for the period 2017–2019E.

Financial Highlights (Y/E 31 Dec)

Key Points and Analysis

3Q17 Results Highlights

• Net profit increased by 30% YoY to RMB1,238m, driven by 8% revenue growth and 7% decline in distribution cost.
• Instant noodle net profit rose by 11% YoY to RMB626m, attributed to 4% revenue growth and gross margin expansion.
• Beverage net profit (after MI) surged by 51% YoY to RMB692m, due to 11% top-line growth and EBIT margin expansion.
• Bottled water remains a weak point in the business, with low-end products dominating the portfolio.
• Management plans to shift focus to premium bottled water in 2018E to align with the fast consumption upgrade in China.
• Tingyi sold four under-utilized beverage factories in 3Q17 and intends to use them as OEMs in the future.
• 2017E earnings forecast is revised upward by 7%–14%, with a target price (TP) raised to HK$10.00 (from HK$9.00), based on a 23.4x 2018E P/E (0.5 SD below its long-term median P/E).
• The company is rated Sell, indicating its full valuation and concerns over beverage profitability.

Upside Risks

• Better-than-expected margins from larger A&P savings.
• Flatter distribution structure in T1–T2 cities.
• Higher idle asset disposal gains.
• Further price hikes in 2018, following a 3% ex-factory price hike in noodles in October 2017.
• Successful premium new product launch.

Earnings Forecast Revision (2017–2019E)

• Total revenue is expected to grow at 5% CAGR, with net profit growing at 26% CAGR.
• Instant noodles are projected to see revenue growth of 5.7% in 2017E and net profit growth of 7.4%.
• Beverages are forecasted to grow revenue by 7.4% and net profit by 5.4%.
• RTD tea is expected to have revenue growth of 9.5% and net profit growth of 6.0%.
• Bottled water is projected to grow revenue by 3.0% and net profit by 15.2%.
• Fruit juice is forecasted to grow revenue by 11.0% and net profit by 18.0%.
• Carbonates, coffee etc. are expected to grow revenue by 5.0% and net profit by 15.2%.

Key Things to Watch

• Market share changes in bottled water, tea, and noodles.
• Channel efficiency from the flatter distribution structure.
• Progress of product premiumization.
• Commodity price trends.

Stock Data

Analyst Notes

• The report is authored by Summer Wang, CFA, with contact details provided.
• The company is rated Sell based on its full valuation.
• The target price is HK$10.00, up from HK$9.00.
• The rating system includes Buy, Neutral, Sell, and Trading Buy/Sell.
• The broad market benchmark for Hong Kong is the Hang Seng Composite Index.

Disclosure and Disclaimer

• The report contains confidential information and is for private circulation only.
• The authors have no financial interests in the company except for one analyst holding Shimao Property Holdings Limited shares.
• BOCOM International Securities Ltd has investment banking relationships with several companies and may have conflicts of interest.
• The information is not guaranteed and should not be relied upon for investment decisions. Investors are advised to consult their own advisers and make independent evaluations.