EUR 850.00 For Business Accounts Only

Morningstar | Uni-President's 3Q Profits Largely in Line; Shares Overvalued Relative to Our HKD 5.60 FVE. See Updated Analyst Note from 12 Nov 2018

No-moat Uni-President China Holdings reported third-quarter net profit largely in line with our expectation. Net income increased 9% year on year to CNY 399 million, decelerating from 25% growth in the first half. While we think the new tax cuts will boost consumers’ income, consumption demand slowed during the third quarter owing to the uncertainty of the ongoing U.S.-China trade war and intensifying competition in the beverage business. We expect the company will be on track with our forecast in the fourth quarter, with revenue and net profit growing at 6% and 24% year on year, respectively, for the full year.

We maintain our no-moat rating and retain our fair value estimate at HKD 5.60 per share, as the negative impact of the depreciation of the yuan against the Hong Kong dollar was offset by the increase in the time value of money. We expect the company’s revenue and net profit to grow at a compound annual growth rate of 5.5% and 12.2%, respectively, through 2022. We think the shares are overvalued at current levels, as they are trading 30% higher than our fair value estimate.

Management is more optimistic for the noodle business, as it believes the market will continue to benefit from the better product mix amid the premiumization trend. In contrast, the company expects to see more headwinds for the beverage business due to escalating competition, especially in the juice category. Meanwhile, we think the lack of successful new product launches will make it difficult for the firm to outperform the market. We forecast the noodle and beverage businesses to grow at CAGRs of 5.2% and 5.6%, respectively, through 2022. We anticipate the operating margin to improve 80 basis points year on year to 6.4% for 2018, driven by higher average selling prices and stable input cost.