Tingyi (322 HK) up MP OP Preview: 2Q17 Earnings Could Beat on Bottled Water and Expense Savings
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Last Close: HK$10.92 Upside: -18% Target Price: HK$9.00↑ Consumer Sector Tingyi (322 HK) UP MP OP Preview: 2Q17 earnings could beat on bottled water and expense savings Financial Highlights Y/E 31 Dec 2015 2016 2017E 2018E 2019E LT Revenue (US$m) 9,103 8,372 8,756 9,154 9,580 Neutral BUY YoY (%) -11.1 -8.0 4.6 4.5 4.7 EBIT margin 5.2 4.8 5.1 5.3 5.6 SELL BUY Net profit (US$m) 256 177 245 280 332 Diluted EPS (US$) 0.046 0.032 0.044 0.050 0.059 YoY (%) -35.9 -30.9 38.5 14.1 18.7 P/E (x) 30.8 44.6 32.2 28.2 23.8 P/B (x) 2.0 2.3 2.2 2.0 1.9 Stock P/S (x) 0.9 0.9 0.9 0.9 0.8 Dividend yield (%) 1.6 1.1 1.6 1.8 2.1 Source: Company data, BOCOM Int’l estimates Key things to watch We expect Tingyi’s 2Q17 earnings to beat consensus. We anticipate the company to deliver RMB361m net profit in 2Q17, helped by an easy base (RMB76m net profit in 2Q16), Beverage sales momentum revenue reacceleration to 8% (driven by bottled water), and margin expansion (led by Beverage segment profitability expense savings). This implies that Tingyi is likely to produce a 76% YoY net profit growth Instant noodle EBIT margin trend on 6% revenue growth in 1H17. We lift our target P/E on Tingyi to 23.4x (-0.5 SD below its High-margin new product launch LT-average P/E of 26.0x, vs formerly -1SD below), as Tingyi’s value-for-money products have gradually picked up sales momentum. Rolling over to 2018E, we raise our TP to HK$9.00 (from HK$7.50) post earnings forecast revision, 18% below the current price. 2Q17 earnings could beat. Tingyi will announce its 2Q17 results on 21 Aug. We anticipate 374% YoY net profit growth building on 8% revenue growth and margin Stock data recovery in 2Q17. In our estimate, revenue should be mainly driven by bottled water 52w Low-High (US$) 7.07-11.12 Market cap (US$m) 7,824 (+25% YoY), juice drink (+10% YoY) and instant noodles (+6% YoY) in 2Q17. On margin 3m ADTV (US$m) 11 drivers, we think the top contributors are expense savings and optimization, followed No. of shares (m) 5,605 by positive mix shift and asset disposals. Free float (%) 33 1m change (%) 21 YTD change (%) 16 Re-rating catalysts. We highlighted in May that (1) beverage sales beat in the summer 14-day RSI 83 season; (2) sustained instant noodle EBIT margin expansion; and (3) potential Auditor Mazars CPA acquisition of the remaining beverage business (TAB) stake from Asahi would be the Source: Company data, Bloomberg re-rating catalysts for Tingyi. Now, (1) we have seen Tingyi’s Youyue-branded bottled 1-year share price performance water is regaining shelf space, with the aid of decent packaging, right pricing and hot 60% HSI Index Tingyi weather; (2) we also expect noodle EBIT margin expansion in 2Q17 led by mix upgrade 50% and stabilization of its value-for-money noodles; and (3) Tingyi also announced to 40% acquire another 20.4% of TAB equity stake by end-2019E from TAB (vs current 57.5%). 30% As such, we raise our target P/E to 23.4x from 21.1x. Successful new product launch 20% may push us to remove the valuation discount. 10% 0% -10%Aug-16 Nov-16 Feb-17 May-17 Aug-17 Raise target price. Rolling over to 2018E, we raise TP to HK$9.00 (from HK$7.50) Source: Company data, Bloomberg based on our revised earnings estimate. Tingyi has had a nice run recently partly thanks to the sector rotation amid risk-averse mode. For us to upgrade the stock, market share gain and a strong new product pipeline (with potential to be Tingyi’s Summer Wang, CFA next cash cows) will be the key. The stock is currently trading at 33x/28x 2017/18E [email protected] P/E on 21% EPS CAGR and 4% revenue CAGR in 2016-19E by Bloomberg consensus. Tel: +852 3766 1808 Download our reports from Bloomberg: BOCM [enter] Download our reports from Bloomberg: BOCM〈enter〉 Tingyi (322 HK)Consumer Sector 18 August 2017 BOCOM International Unit 1701, 17/F, Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong Main: + 852 2297 9888 Fax: + 852 2766 3183 www.bocomgroup.com Rating System Company Rating Sector Rating Buy: Expect more than 20% upside in 12 months Outperform (“OP”): Expect more than 10% upside in 12 months LT Buy: Expect more than 20% upside but longer than 12 months Market perform (“MP”): Expect low volatility Neutral: Expect low volatility Underperform (“UP”): Expect more than 10% downside in 12 months Sell: Expect more than 20% downside in 12 months Research Team Head of Research @bocomgroup.com Deputy Head of Research @bocomgroup.com Hao HONG, CFA (852) 3766 1802 hao.hong Geoffrey CHENG, CFA (852) 3766 1809 geoffrey.cheng Macro-Strategy Internet Hao HONG, CFA (852) 3766 1802 hao.hong Yuan MA, PhD (86) 10 8800 9788 - 8039 yuan.ma Karen TAN (852) 3766 1825 karen.tan Connie GU, CPA (86) 10 8800 9788 - 8045 connie.gu Grace HUA, CFA (852) 3766 1837 grace.hua Mengqi SUN (86) 10 8800 9788 - 8048 mengqi.sun Zhe ZHOU (86) 10 8800 9788 - 8041 zhe.zhou Shan Ying (86) 10 8800 9788 - 8044 ying.shan Banks/ Non-Bank Financials Property Shanshan LI, CFA (86) 10 8800 9788 - 8058 lishanshan Alfred LAU, CFA, FRM (852) 3766 1807 alfred.lau Li WAN, CFA, FRM (86) 10 8800 9788 - 8051 wanli Philip TSE, CFA, FRM (852) 3766 1815 philip.tse Hannah HAN (852) 3766 1858 hannah.han Carmen WONG (852) 3766 1830 carmen.wong Jennifer ZHANG (852) 3766 1850 yufan.zhang Consumer Renewable Energy Summer WANG, CFA (852) 3766 1808 summer.wang Louis SUN (86) 21 6065 3606 louis.sun Environmental Services Technology Wallace CHENG (852) 3766 1810 wallace.cheng Chris YIM (852) 3766 1803 christopher.yim Gaming & Leisure Transportation & Industrials Alfred LAU, CFA, FRM (852) 3766 1807 alfred.lau Geoffrey CHENG, CFA (852) 3766 1809 geoffrey.cheng Fay ZHOU (852) 3766 1816 fay.zhou Healthcare Automobile & Defense David LI (852) 3766 1811 david.li Angus CHAN (852) 3766 1805 angus.chan Download our reports from Bloomberg: BOCM [enter] 2 Tingyi (322 HK)Consumer Sector 18 August 2017 Analyst Certification The authors of this report, hereby declare that: (i) all of the views expressed in this report accurately reflect their personal views about any and all of the subject securities or issuers; and (ii) no part of any of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report; (iii) no insider information/ non-public price-sensitive information in relation to the subject securities or issuers which may influence the recommendations were being received by the authors. The authors of this report further confirm that (i) neither they nor their respective associates (as defined in the Code of Conduct issued by the Hong Kong Securities and Futures Commission) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of the report; (ii)) neither they nor their respective associates serve as an officer of any of the Hong Kong listed companies covered in this report; and (iii) neither they nor their respective associates have any financial interests in the stock(s) covered in this report except for one coverage analyst who is holding shares of Shimao Property Holdings Limited. Disclosure of relevant business relationships BOCOM International Securities Limited, and/or its associated companies, has investment banking relationship with Bank of Communications, Guolian Securities Co. Ltd., Bank of Zhengzhou Co. 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