Morningstar | 2897 Updated Star Rating from 06 Feb 2019
Nissin Foods is determined to establish its Cup Noodles brand as a globally recognized producer of premium instant noodles. Diminishing growth at home has prompted Nissin to shift focus to overseas markets, specifically BRIC countries. It intends to channel its resources to invest in brand-building and geographic expansion in key foreign markets while maintaining steady profitability in Japan to fund overseas strategies.Nissin expects to ramp up its presence in emerging markets with the Cup Noodles brand. Pricing has been a key obstacle to implementing Cup Noodles’ global strategy, given its premium positioning, which explains its late entry into Asia (excluding Japan), which represents nearly 80% of global consumption, with China contributing half of demand. Brazil, Nissin's largest overseas market, is emerging as a target for Cup Noodles. According to Nissin, penetration of noodles in containers is likely to accelerate when the market meets the following criteria: nominal per capita GDP hits $8,000; youth population is close to 20%; and prices of Cup Noodles are about one third of those of fast food.Despite Nissin’s commanding lead with more than 60% share, noodles in containers possess a mere 3% share in Brazil. It is poised to gain ground in the cup category by increasing product offerings on the expectation that penetration will rise to at least 10% by 2020.In China, rising concerns about food safety and quality are working in Nissin’s favor. Nissin currently operates in 60 cities with population above 3 million and targets the premium segment, namely CNY 5 or above per serving. It has acquired an almost 20% share in the premium segment but still trails behind leader Master Kong’s 38%. Given a presence limited to coastal areas, we see plenty of room to expand distribution network and gain share.Nissin intends to foster the snack business as its second growth pillar. Its plans to launch cereal products in China and rice crackers in Western markets seem feasible and create distribution synergies with instant noodles, although the category is unlikely to become a meaningful earnings contributor over our forecast period.Nissin Foods Holdings is a holding company. Through its affiliates, Co. is mainly engaged in the manufacture and sale of instant noodles and other food products in Japan and overseas. Co. manufactures cup and bag-type instant noodles under the names of "Chicken Ramen," "Cup Noodle," "Nissin-no-Donbei," "Demae Iccho," "Myojo Charumera, " "Myojo Ippeichan," and others. Co. also manufactures chilled and frozen food products including ramen noodles, yakisoba noodles, pasta, snacks, and cooked rice. In addition, Co., through its affiliates, is engaged in the manufacture and sale of confectionery and dairy products, the real estate business, and the operation of restaurants and golf courses.
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