CICC maintains a "outperform industry" rating for Tingyi (00322) with a target price of 12 Hong Kong dollars.

CICC released a research report stating that they maintain a "outperform industry" rating for Tingyi (00322). They basically maintain their profit forecast for 2024 and 2025, introducing a revenue/profit forecast of 85 billion/4.4 billion RMB for 2026, with a target price of 12 Hong Kong dollars and a dividend yield of 7% for 2024. The bank predicts the company's revenue to be 80.7 billion RMB in 2024, a year-on-year increase of 0.3%, with a net profit of 3.6 billion RMB, a year-on-year increase of 15.5%. Excluding one-time asset activation income, the net profit grew by over 20% year-on-year; in the second half of 2024, revenue is expected to decline slightly by 0.1% year-on-year, while net profit is expected to increase by 16%. The bank predicts that the company's performance may exceed market expectations. The main viewpoints of CICC are as follows: Revenue performance in the second half of 2024 is stable, and the food and beverage business may show a trend of improvement in the fourth quarter of 2024. According to the bank's grassroots research, the company's instant noodle business is expected to remain stable year-on-year in the second half of 2024. In July, the company completed the upgrade and price increase of its classic series products, leading to a decrease in instant noodle sales and market share in the third quarter. It is expected to recover year-on-year in the fourth quarter due to a low base. Beverage revenue has been weak due to factors such as weather and competition in the third quarter. It is expected to recover year-on-year in the fourth quarter. Overall, beverage revenue in the second half of 2024 may still experience a slight decline year-on-year, with tea drinks maintaining good growth, while water and juice could see a decline and carbonated drinks are expected to improve from the fourth quarter of 2024. The bank predicts that the company's revenue will remain relatively stable for the whole year, slightly weaker than the company's mid-year guidance but considering factors such as price increases in the instant noodle and beverage businesses and intensified competition in the beverage industry, the overall performance in revenue for the year is relatively stable. The increase in profit margin in the second half of 2024 may exceed expectations. Benefiting from price increases, cost advantages, and product structure improvements, the company's gross profit margin in the second half of 2024 is expected to increase more than expected. The bank predicts that the gross profit margins for instant noodles and beverages will increase by 2.1% and 2.6% year-on-year, respectively, exceeding the first half of the year. In order to maintain market share, the selling expense ratio in the second half of 2024 may increase slightly year-on-year, while the administrative expense ratio may remain stable. At the financial level, the company's net profit margin in the second half of 2024 may increase by about 0.4%, considering that the company recorded a one-off asset disposal gain of approximately 400 million RMB in 2023, the annual core net profit margin is expected to increase by close to 1 percentage point, with a forecasted profit of 3.6 billion RMB for the whole year, exceeding the mid-year guidance and market expectations. The disturbance of palm oil prices in 2025 may be limited, focusing on the company's long-term profit margin improvement plan. Since the fourth quarter of 2024, palm oil prices have risen significantly due to supply factors in Indonesia and Malaysia, with prices currently up by 30% compared to the first three quarters of 2024. The recent decline in the company's stock price is partially due to market concerns about the impact of rising palm oil prices on the year-on-year improvement in profit margin for the company. The bank believes that this impact may be limited, as industry cost increases may be mitigated by industry competition and promotional efforts. Additionally, the company may mitigate some cost pressures through improvements in product structure and formulation adjustments, while the prices of paper boxes, PET, and white sugar are expected to weaken in the fourth quarter of 2024, easing overall cost pressures. Considering the company's firm long-term goal of improving profit margins, the bank predicts that the increasing trend in profit margins year-on-year in 2025 may continue, with the profit margin improvement in the beverage sector possibly exceeding that of instant noodles. Overall, the company's fundamentals are sound, with significant room for profit margin improvement and an attractive dividend yield. The bank is optimistic about the long-term investment value of the company. Risks: Significant increases in raw material prices, weak demand, and intensified competition.