Corporate China

Tingyi (Cayman Islands) Holding Corporation

Ratings Overview

Issuer Rating ▪ Pengyuan International has assigned a first-time global scale long-term issuer LT Issuer Credit Rating A- credit rating (LTICR) of ‘A-’ to Tingyi (Cayman Islands) Holding Corp. (Tingyi), with a stable outlook.

Outlook Stable ▪ Tingyi’s ratings are supported by its leading market position in China, exceptional leverage profile and long record of low volatility operations. The Company’s rating is constrained by its limited geographic diversity and competition within the China market.

▪ Founded in 1991, Tingyi, through its subsidiaries, engages in the production Contents and distribution of instant noodles and ready-to-drink beverages in the People’s Republic of China. For more than 17 years Tingyi has had the largest Key Rating Drivers ...... 1 market share in both instant noodles and ready-to-drink tea. In terms of revenue, the Company is the fifth largest publicly traded food and beverage Business Profile…………………....4 company in China. Financial Profile…………………….6

Liquidity ...... 8 Rating Outlook Company Background ...... 8

Peer comparison ...... 9 ▪ The stable outlook for Tingyi reflects Pengyuan International’s expectation Rating Scores Summary ...... 12 that the Company will be able to maintain its market position and operational strength. Related Criteria ...... 12 ▪ We would consider downgrading Tingyi’s issuer credit rating if: 1) EBITDA Margins decreased to below 8% on a sustainable basis. 2) There was a rapid

decrease in market share for key products due to rising competition. 3) The

Company undertakes aggressive acquisitions and weakens its liquidity

We would consider an upgrade of Tingyi’s issuer credit ratings if: 1) There is a sustained increase in market share. 2) The company strengthened its product offering by having more financially successful premium priced products

Contacts Financial Summary

Primary Analyst Exhibit 1: Financial Ratios Name Jonathan Joseph Tai, CFA 2018A 2019A 2020F 2021F 2022F Title Analyst Debt/EBITDA 0.9x 0.7x 0.2x 0.2x 0.1x Direct +852 3615 8276 EBITDA Interest Coverage 16.9x 16.8x 17.3x 15.1x 15.0x Email [email protected] Gross Debt/Capitalization 31.5% 34.9% 37.7% 37.4% 36.8%

FFO/Debt 93.5% 127.8% 337.8% 425.8% 641.6% Secondary Analyst OCF/Debt 112.1% 135.4% 388.2% 307.8% 504.8% Name Brian Lam FCF/Debt 90.7% 95.5% 290.2% 162.3% 266.8% Title Director Direct +852 3615 8339 ROIC 10.4% 14.5% 16.9% 15.7% 16.4% Email [email protected] Source: Company, Pengyuan International estimates

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Key Rating Drivers

Credit Strengths • Leading market position. Tingyi has long been one of the top players in the packaged food and beverage industry and it has been the absolute top player in China for instant noodles and ready-to-drink (RTD) tea. It had 43.3% and 45.7% of the instant noodles and ready-to-drink tea sales volume in China in 2019. This vastly outmatched its nearest competitor, UPC, who had roughly 34% and 38% of Tingyi’s revenue in instant noodles and beverage that year. In addition, the company has strong market positions in other product categories like juice, ready-to-drink coffee and carbonated drinks where in each sector it ranks second by market volume in China.

• Strong leverage Profile. Despite having a gross debt-to-capitalization ratio of 35%, Tingyi has minimum amount of net debt. The company has very strong net debt-to-EBITDA, EBITDA interest coverage and FFO-to-net debt ratios, suggesting that it has a strong capability to service its debt obligations and assume more debt. Net debt-to-EBITDA has been decreasing for the last few years and is fluctuating near zero because the company has reported a net cash position since FY2018. Likewise, the interest coverage ratio has been improving for the last few years. We believe the company’s overall leverage will remain very healthy despite the fact that its gross debt-to-capitalization ratio could see a small increase in FY2020-21. We expect it to rise to 38% from 35% in 2019 as a result of its recent bond issuance.

• Long record of low volatility operations. Tingyi has a track record of maintaining stable gross and EBITDA margins. Excluding one-time gains and losses and non-operating items, adjusted EBITDA margins ranged from 11.0-11.8% between FY2016 and FY2019, showing exceptional stability. In addition, the company generates strong and stable cash flow from operations and has not encountered any significant liquidity problems for at least the last 6 years. The company has reported increased gross margins and lower distribution expenses in 1H2020, partly because consumers have increased their purchases of Tingyi’s high-end packets. For this reason, FY2020 adjusted EBITDA margin is likely to be higher than previous years and estimated to be 12.9%. We believe adjusted EBITDA margin to revert to 11.4% in FY2021, near FY2019’s level, as consumers resume to their pre-pandemic behavior.

Credit Weaknesses

• Low growth environment. The company’s beverage business focuses mainly on RTD tea, carbonated drinks and juice. According to Euromonitor, these are some of the slowest growing sub-industries in the beverage industry with some sectors having seen negative growth from 2014 to 2019. In addition, World Instant Noodles Association figures show that instant noodle volume had only 2.5% growth from 2016 to 2019. This means that both of Tingyi’s primary market segments have historically had low growth rates and given the current macro environment we expect that to remain for the near future. On a positive note, the company has shown improving operations in this low growth environment and we expect it to continue to show marginal improvements in profitability and operating efficiency.

• Intensifying market competition. In addition to the low growth environment, consumer preferences are changing. Demand is favouring more premium, high-quality and healthier products with less oil, less sugar and less additives. However, Tingyi’s main products are arguably positioned towards the middle or mass market and some competitors may be more capable of taking advantage of this change in consumer preference. Tingyi is experiencing decreasing market share due to intense competition from these competitors. The premium products segment is seeing higher growth than the regular or mass market products where Tingyi has larger exposure. Tingy’s instant noodle market share by value has decreased from 51.1% in 2016 to 46.6% in 2019, while market share by volume seems to have stabilized at around 43.3% with no significant change. Likewise, Tingy’s market share by value in beverages is also decreasing. If Tingyi can improve its product mix with more financially successful premium products, its market share decreases should slow.

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Exhibit 2: Key Credit Metrics

(RMB in millions) 2018A 2019A 2020E 2021F 2022F Revenue 60,686 61,978 64,923 66,469 68,932

Adjusted EBITDA* 7,183 6,975 7,785 7,573 7,902 Adjusted EBITDA Margin* 11.8% 11.3% 12.0% 11.4% 11.5% Return on assets (ROA) 7.6% 9.6% 9.6% 8.4% 8.6% Return on invested capital (ROIC) 10.4% 14.5% 16.9% 15.7% 16.4% Cash Flow Measures

Funds from operations (FFO) 5,920 5,861 6,024 6,041 6,323 Operating cash flows (OCF) 7,099 6,208 6,923 4,368 4,976 Free cash flow (FCF) 5,745 4,380 5,175 2,303 2,630 Discretionary cash flow (DCF) 4,675 1,779 3,613 807 991 Capital expenditure 1,355 1,828 1,748 2,065 2,346 Balance Sheet Measures

Cash and liquid investments 13,840 17,430 22,980 24,360 25,916 Excess cash 4,500 7,788 13,066 14,173 15,386 Total debt 10,835 12,374 14,849 15,592 16,371 Adjusted debt 6,335 4,586 1,783 1,419 986 Total capitalization 34,447 35,421 39,388 41,739 44,507 Leverage Measures

Debt/EBITDA 0.9x 0.7x 0.2x 0.2x 0.1x EBITDA/Interest expense 16.9x 16.8x 17.3x 15.1x 15.0x Gross Debt/Capitalization 31.5% 34.9% 37.7% 37.4% 36.8% FFO/Debt 93.5% 127.8% 337.8% 425.8% 641.6% OCF/Debt 112.1% 135.4% 388.2% 307.8% 504.8% FCF/Debt 90.7% 95.5% 290.2% 162.3% 266.8% DCF/Debt 73.8% 38.8% 202.6% 56.9% 100.6% Debt/Equity 26.8% 19.9% 7.3% 5.4% 3.5% FFO/Cash interest expense 13.9x 14.1x 13.4x 12.0x 12.0x

Source: Company, Pengyuan International Estimates

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Business Profiles

F&B giant and the leading market player in the instant noodle and ready-to-drink tea market According to The Guinness World Records, Tingyi is the largest instant noodle company by value and the largest ready-to- drink tea beverage company by volume in the world. In 2019, the Company reported a total revenue of RMB 62 billion. It is the fifth largest publicly traded food & beverage company in China, right after WH Group, Yili Group and Kweichow Moutai and Mengniu. Internationally, Tingyi is still a very sizable company and is larger than a lot of well-known international companies such as Campbell Soup and Sudzuker. Notably, Nissin Foods Group, the second largest instant food company, reported a revenue of JPY 462 billion, or roughly RMB 29 billion, in CY2019.

Exhibit 3: 2019 Market Share by volume Main Products Market Share Ranking Convenient food Instant Noodle 43.3% 1

RTD Beverage Ready-to-drink tea 45.7% 1 Juice 15.9% 2

Bottled Water 5.4% n.a. Ready-to-drink Coffee 17.6% 2 Carbonated drinks 32.9% 2

Source: Nielsen, Pengyuan International

The table above showcases that in 2019 Tingyi’s products had leading market positions in China. All of its main products, beside bottled water, ranked 1st or 2nd in market share. For the first 6 months of 2020 Tingyi’s various products have performed admirably well and they have seen market share gains. Instant noodle sales volume increased 12.3% on a YoY basis compared to the industries’ increase of 5.6% overall. Sales volume of RTD coffee and bottled water has significantly outperformed the market showing increases of 7.5% and 6.2% in 2Q of 2020 compared to the industry’s -9.2% and -6.3% growth in the same period. RTD tea and Carbonated drinks are mostly in line with the industry showing -9.6% and 13.4% growth in sales volume in 2Q of 2020. This compares to the industries’ -9.7% and 13.1% growth in the same period.

Prior to 2020, however, Tingyi was experiencing a decrease in market share in most of its key product types mainly due to intense competition from smaller competitors. There is a real possibility that these decreases will continue as consumers revert to their pre-pandemic behaviour. The premium products segment is seeing higher growth than regular or mass market products where Tingyi has larger exposure. Tingyi’s instant noodle market share by value has decreased from 51.1% in 2016 to 46.6% in 2019. However, its market share by volume seems to have stabilized at around 43.3% with no significant change in the last few years. This indicates that the price per unit sold in the market is increasing faster than Tingyi’s price per unit sold. Assuming there is limited space to improve market share by sales volume, Tingyi would need to push new premium- priced products in order to maintain its market share. Regardless, Tingyi is still the dominant player in the instant noodle and RTD beverage market. They vastly outmatch their nearest competitor, UPC, who had roughly 34% and 38% of Tingyi’s revenue in instant noodles and beverage in FY2019.

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Strong product offering and improving distribution channels The Company mainly engages in the development, manufacturing and distribution of ready-to-drink beverages and instant noodles. Exhibits 3 show a breakdown of the Company’s business segments. Over 99% of the Company’s revenue are in People’s Republic of China.

Exhibit 4: Revenue breakdown by product category (2019)

Source: Company, Pengyuan International estimates

Company-owned core products are “Master Kong Ice Tea” and “Master Kong Braised Beef Instant Noodle”. The Company has developed multiple financially successful products such as “Master Kong Jasmine Tea”, “Master Kong Green Tea”, and “Spicy Beef Instant Noodle” which are derived from these core-products. The Company offers different products in different price tiers for example “JinShuang” and “Fumanduo” are the lower-priced products for its instant noodle business and “Cha Can Ting” are the premium priced products for the beverage segment.

In 2012, Tingyi formed a strategic alliance with PepsiCo where it exclusively manufactures, packages and distributes PepsiCo’s non-alcoholic drinks in the PRC. PepsiCo related products have arguably been one of the Company’s best performing products in the beverage segment. Carbonated drinks and others, which consist of mostly PepsiCo’s products, had a CAGR of 13.1% from FY2016-19. In addition, the Company partnered with coffee industry leader, Starbucks, in 2015 and coffee products quickly found success. By FY2019 Tingyi had the second largest market share in China’s RTD coffee market at 17.6%. The addition of Starbucks and PepsiCo products has significantly strengthened Tingyi’s product mix enabling them to cover most beverage types including but not limited to energy drinks, RTD coffee, bottled water, carbonated drinks, juice and RTD tea.

Besides introducing new products, the Company is continuously reviewing and improving its supply chain channels. Tingyi has a distribution network that covers most of mainland China and since 2016 has been centralising production while simultaneously expanding its sales network which has resulted in lowered employee numbers overall:

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Exhibit 5: Supply Chain facilities count and employee headcount OVERALL FY2016 FY2017 FY2018 FY2019 TREND PRODUCTION CENTRES INSTANT NOODLES 20 16 15 14 decreasing BEVERAGE 103 100 86 72 decreasing

MAN POWER EMPLOYEES 69,425 65,182 56,995 54,210 decreasing

SALES NETWORK SALES OFFICE 598 369 369 371 decreasing STOREAGE FACILITY 69 92 108 182 Increasing WHOLESALER 33,653 35,163 28,415 36,186 Increasing DIRECT RETAILER 116,222 129,449 140,779 185,789 Increasing

The restructuring of its supply chain allows the Company to adopt an asset-light business model and this consequently improves the Company’s profitability. Return on Assets and Return on Invested Capital Ratios have been improved rapidly and have more than doubled since FY2016. Below is a table that displays selected PP&E related items from the Company’s balance sheet:

Selected B/S items FY2016 FY2017 FY2018 FY2019 Additions/(Disposals) 1,295,619 (807,049) 745,478 1,183,151 Depreciation directly to PP&E (3,676,512) (3,513,679) (3,210,324) (2,952,224) Other (103,897) (221,277) (622,303) (144,566) PP&E Net Change (2,484,790) (4,542,005) (3,087,149) (1,913,639)

PP&E Ending Balance 32,556,784 28,014,779 24,927,630 23,013,991

We expect that the decreases in PP&E will continue for only a few years as Tingyi’s fixed asset turnover ratio is still slightly below other selected China instant food peers.

In short, the Company offers a wide variety of instant noodle and beverage products and many of these have strong market share. The Company has distribution channels that cover most of China and offers products in multiple price-tiers allowing it to attract consumers in different tiers of cities. The restructuring of Tingyi’s supply chain, which has allowed it to optimize its PP&E, should continue for a few more years and allow the Company to better its profitability ratios.

Financial Profile

Strong cash flow generating ability and Long record of low volatility operations The Company has had a very strong showing during the pandemic as we have seen the demand for instant noodles increase significantly. In 1H2020, Tingyi’s instant noodle segment recorded a 29.1% growth in revenue and an 87% increase in net segment profits, outperforming the sector whose retail value grew 11.5% nationally. Even the beverage segment at Tingyi did admirably well, falling just 4.1% YoY in 1H2020 versus the whole beverage sector which fell 9% during the same period.

Overall, in 1H2020 headline revenue grew 8.0% on a YoY basis and all margins improved. The Company was able to show strong improvements in gross margins and distribution expense bringing Tingyi’s profit margin to 8.1% and realising a 58.4% increase in net profits on a YoY basis. This beat market consensus expectations.

In the last few years, increased penetration by online retail channels and food delivery applications, new products from competitors and, more recently, COVID have all represented challenges which drastically changed the business environment for Tingyi. Yet, despite all of these obstacles, the Company has still been able to show rather low volatility in margins and seen growth. From FY2016 to FY2019 adjusted EBITDA margin, which excludes gains from asset sales and non-operating items, moved in a fairly narrow range between 11.0% to 11.8% and only hit 13.6% in 1H2020 because of the pandemic. The

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Company has been consistently profitable and made very efficient use of working capital; its cash conversion cycle has been consistently negative for at least the last six years. Tingyi has generated very strong cash flows from operations, more than enough to cover all outflows from investing and financing activities, which include the occasional repayment of debt.

If we exclude FY2014 and FY2015 when a lot of the food companies were impacted by the “gutter oil” incident, Tingyi has a long record of positive (if not necessarily exciting) growth. With its stable of strong products like “Pepsi”, “Master Kong Cup Noodles”, “Starbucks Frappuccino” and “Master Kong Ice Tea”, we think they will continue to provide a stable income stream from sales for the foreseeable future.

Looking beyond 2020, we believe Tingyi can maintain gross and EBITDA margins similar to those in FY2019 as gross margins and distribution expenses return to pre-pandemic levels. This assumes commodity prices remain largely the same. Revenue and adjusted EBITDA growth should be slightly weaker in FY2021 than in FY2020, as the impact of the pandemic fades away.

Exhibit 6: Gross and Adjusted EBITDA margin Exhibit 7: Revenue and EBITDA growth

50% Gross Margin 30% Revenue yoy growth 45% Adjusted EBITDA Margin Adjusted EBITDA yoy growth 40% 25% 35% 20% 30% 25% 15% 20% 15% 10% 10% 5% 5% 0% 0% 2017 2018 2019 1H2020 2020 2021 2022 -5%

Source: Company, Pengyuan International estimates Source: Company, Pengyuan International estimates

Strong leverage Profile Taking advantage of the low interest rate environment, The Company increased its total debt by 14% in FY2019 and another 20% in 1H2020. Tingyi has been increasing its debt even though there were no significant acquisitions or a lack of cash flow. The proceeds from the borrowings were used mainly to increase Tingyi’s cash position and to increase its investments: either buying long-term financial assets or acquiring minority interest from its PepsiCo business units. Essentially, the borrowing was to increase assets. The Company now has a strong cash balance and strong leverage profile that should potentially allow it to take on more risk in expanding its business.

Exhibit 9: Showing near zero adjusted net debt despite total debt increases, RMB in billion 20

15

10 Total debt Adjusted net debt 5

0

-5 2016 2017 2018 2019 1H2020 2020 2021 2022

*Assuming Tingyi maintain 2 months of operating cost as operating cash Source: Company, Pengyuan International estimates

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Tingyi has been able to gain cash and enhance its net debt position by 1) restructuring of its supply chain which resulted in the disposal of subsidiaries and assets, and 2) recuring operations. Since FY2018, net debt has been decreasing despite a rise in total debt and Tingyi has reported a net cash position in 1H2020.

As a consequence of a contracting net debt position, net debt to EBITDA and FFO to net debt ratios have significantly improved in 2019A and 2020E, while Tingyi’s coverage ratio and capitalized ratio stayed mostly the same, as demonstrated in the following table:

Exhibit 8: Key Leverage Ratios, based on adjusted figures Leverage Ratio 2018A 2019A 2020E 2021F 2022F Net Debt to EBITDA 0.9x 0.7x 0.2x 0.2x 0.1x EBITDA Interest Coverage 16.9x 16.8x 17.3x 15.1x 15.0x Gross Debt/ Total Capitalization 31.5% 34.9% 37.7% 37.4% 36.8% FFO/Net Debt 93.5% 127.8% 337.8% 425.8% 641.6%

According to the financial policy released by Tingyi in FY2019, management has the intention to minimize the Company’s net debt to nil balance. Assuming management’s intention does not change; the Company should see a decrease in its net cash position after 1H2020. For FY2021 and 2022, we expect the Company’s net debt position to remain near zero, hence, some of its leverage ratios in the table above are showing extreme values.

We do not believe that the positive impact that the pandemic has had on Tingyi’s EBITDA will continue in FY2021 and we may see a smaller increase or even a decrease in that year. In addition, the full impact of the interest expense from the increased borrowing in 1H2020 will not be fully recognized until FY2021. As a result of both the increased interest expense and decreased EBITDA, FY2021 EBITDA interest coverage ratio should fall.

Last but not least, as the Company has such a strong cash balance, we, expect them to continue to acquire some of the non- controlling interest in its subsidiaries and purchase more financial assets when there is excessive cash available.

Liquidity

Tingyi is cash rich and has a record of high liquidity. The Company reported RMB 17.4 and 23.3 billion in cash in FY2019 and 1H2020. These figures are significantly higher than the RMB 0.42 and 0.41 billion in financial expense reported in the same period.

The current ratio was 0.90x in FY2019 and increased to 0.86x in 1H2020. The quick ratio has improved from 0.67x to 0.70x in FY2019 and 1H2020. The Company has arguably maintained the same amount of liquidity before and after the pandemic. Without any substantial and unexpected changes, the Company should no liquidity problems in the near future.

We made the following key projections on Tingyi’s liquidity: ▪ Estimated liquid assets on hand of RMB23.0 and 24.4 billion in 2020 and 2021; ▪ Estimated FFO of RMB6.0 and 6.0 billion in 2020 and 2021; ▪ Estimated short-term debt payment of RMB10.4 and 10.1 billion in 2020 and 2021; ▪ Estimated cash interest of RMB 0.45 and 0.50 billion in 2020 and 2021; ▪ Estimated capital expenditure, excluding M&A spending, of RMB1.7 and 2.1 billion in 2020 and 2021.

Company Background

Founded in 1991, Tingyi (Cayman Islands) Holding Corp., through its subsidiaries, engages in the production and distribution of instant noodles and beverages in the People’s Republic of China. In 2012, the Company formed a strategic alliance with PepsiCo., The Company exclusively manufactures, bottles, packages, distributes and sells PepsiCo non-alcoholic drinks in the PRC. In 2015, the Company partnered with coffee industry leader, Starbucks, for the production and distribution of Starbucks ready-to-drink products in mainland China.

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Beverages, the group’s largest segment, can be further broken-down into: 1) Tea, 2) Carbonated Drinks and Others, 3) Juice, 4) Water. All of its products are packaged in a ready-to-drink form: either bottled or canned with different serving sizes. “Master Kong Ice Tea”, “Master Kong Jasmine Tea”, “Master Kong Green Tea” are the star products of the Company and arguably the core products that solidify Tingyi’s leading position in ready-to-drink tea. Carbonated Drinks and others, the second largest sub-segment of the Company, consist of products mainly from Pepsi-Cola and Starbucks such as Pepsi, Gatorade & Starbucks Frappuccino.

The instant noodles segment can be sub-divided into: 1) Bowl, 2) High-end packet, 3) Mid-end packets, 4) Snack Noodle & Others. The Company’s products have a rather wide price range which allows it to attract consumers in different tiers - as of September 2020, Tingyi’s instant noodle products ranged in price from RMB 1.5 to 30 per packet/bowl per JD.com. It also has a multi-flavour products strategy that dashes out new flavours and products from time to time to maintain consumer interest.

Tingyi was the fifth largest publicly traded food and beverage company in China (by revenue) in 2019 and for over 17 years Tingyi has had the largest market share in both instant noodles and ready-to-drink tea in the country.

Peer comparison

Peers can be broken-down into two groups – Uni-President China (UPC) and other Greater China Peers. They were selected because they: 1) produced snack/convenience foods or RTD beverages, 2) had similar production and distribution networks that focused mainly on their own products and 3) were relatively large scale as measured by revenue.

UPC, in particular, is singled out from the peers as a direct comparison to Tingyi as both UPC and Tingyi are within the same sub-industry with largely the same revenue composition i.e. 55-62% of revenue from beverage, 38-45% of revenue from instant noodles. Arguably, both companies offer very similar products, with similar pricing, and their products are sold in the mostly the same locations.

The following is a short description of the selected peer companies: Uni-President China Holdings LTD. Uni-President China Holdings Ltd., through its subsidiaries, engages in the manufacturing and sale of beverages and instant noodles. The Company operates in three segments: beverages, instant noodles, and others. Respectively, these three segments accounted for 57.8%, 38.6%, 3.6% of the company’s total revenue in FY2019. All of the company’s revenue were in the PRC. The Company's beverage products include juice, ready to drink teas, milk tea, coffee, bottled water and yoghurt. Its instant noodle products include bowl noodles, packet noodles, and snack noodles in different flavors.

Want Want China Holdings Limited Want Want China Holdings Limited, through its subsidiaries engages in the manufacturing and distribution of food and beverages. The Company operates in four segments: 1) dairy products and beverages, including flavored milk, yogurt drinks, ready-to-drink coffee, carbonated drinks, herbal tea and milk powder; 2) rice crackers, including sugar coated crackers, savory crackers and fried crackers; 3) snack foods, including candies, popsicles and jellies, ball cakes and beans and nuts, and 4) other products, which mainly includes wine. These four segments accounted for 27.9%, 48.8%, 23.1%, and 0.2% of the company’s total revenue respectively in FY2020 (March 31 year-end). Over 90% of the company’s revenues were from the PRC with the balance coming from Southeast Asia, the United States and Europe.

Dali Foods Group Company Limited Dali Foods Group Company through its subsidiaries engages in the manufacturing and distribution of food and beverage. The Company operates in four segments: 1) snack food, including bakery, potato puffed food, biscuit; 2) ready-to-drink beverage, including energy drinks, herbal tea; 3) household consumption, including Soymilk, Bread, and 4) others. Respectively, these four segments account for 47.5%, 33.4%, 12.4%, and 6.7% of the company’s total revenue in FY2019. Over 90% of the company’s revenues were from Mainland China.

Nissin Foods Company Limited Nissin Foods Company Limited is the Hong Kong/China subsidiary of the larger Japanese food company Nissin Food Holdings Co., Ltd. Through its subsidiaries, the company engages in the manufacturing and distribution of noodles and frozen food. The company is the brand-owner of the renowned “Cup Noodles” and “Demae Iccho”, and has the leading market share in Hong Kong and is one of the larger instant noodle companies in China. The company is also a significant player in the Hong

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Kong frozen dim sum market. As in FY2019, 57.9% of the company’s revenue was from Mainland China, 38.5% was from Hong Kong, and the remaining 3.6% was from other countries and regions.

Vitasoy International Holdings Ltd. Vitasoy International Holdings Ltd. through its subsidiaries engages in the manufacturing and distribution of food and beverages. The two major brands under the company are VITASOY (soy drinks and packaged tofu) and VITA (teas, juice, distilled water and dairy-milk products). In addition, the company may offer different products or brands in certain markets to cater to different consumer preferences. In FY2020 (March 31 year-end), 62.3% of the company’s revenue was from Mainland China, 29.1% from Hong Kong, 6.9% from Australia and New Zealand, and the remaining 1.6% was from Singapore.

Nongfu Spring Co., Ltd. Nongfu Spring Co., Ltd. through its subsidiaries is engaged in the packaged drinking water and other beverage business in the PRC. According to the F&S Report, Nongfu had the highest market share in the packaged drinking water market in China for eight consecutive years from 2012 to 2019. Additionally, they were among the top three players in the tea beverage, functional beverage and juice beverage markets in China by retail sales value in 2019. The Company operates in five segments: 1) Packaged drinking water products, 2) Tea beverage products, 3) Functional beverage products, 4) Juice beverage products, 5) Other products, with each accounting for 59.7%, 13.1%, 15.7%, 9.6%, and 1.9% of the company’s total revenue respectively in FY2019. Over 99% of Nongfu’s revenue and profits are from Mainland China.

China Mengniu Dairy Company Limited China Mengniu Dairy Company Limited through its subsidiaries, manufactures and distributes processed dairy products, including but not limited to: yogurt, milk beverages, ice cream, powdered milk and cheese. The company is based in Inner Mongolia. Mengniu has the second largest market share of dairy products according to Nielsen and is the second largest dairy company in China in terms of market cap.

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Exhibit 8: Peer comparison table (ratios as of FY19)

(RMB mn) Tingyi UPC Mengniu Nongfu Dali Want Vita Nissin Financials Revenue 61,978 22,252 79,030 24,105 21,445 20,812 6,470 2,772 Revenue 3year CAGR 3.7% 1.5% 13.7% 17.3% 6.2% 1.7% 11.7% 5.6% EBITDA 6,975 3,204 6,582 8,031 5,401 5,435 1,037 304 EBITDA Margin 11.3% 14.4% 8.3% 33.3% 25.2% 26.1% 16.0% 11.0% Return on assets (ROA) 9.6% 8.4% 7.1% 35.4% 23.5% 15.4% 16.1% 6.8% Return on invested capital (ROIC) 14.5% 13.7% 11.6% 50.1% 23.9% 15.7% 21.5% 7.1%

Cash Flow Measures Funds from operations (FFO) 5,861 2,542 5,556 6,471 4,093 3,813 856 238 Operating cash flows (OCF) 6,208 2,869 1,912 7,472 5,015 4,353 1,092 412 Free cash flow (FCF) 4,380 2,365 (2,875) 4,158 4,015 3,998 311 224 Discretionary cash flow (DCF) 1,779 3,412 (4,249) 4,158 4,015 6,295 334 334 Capital expenditure 1,828 504 4,787 3,314 1,001 355 781 187

Balance Sheet Measures Cash and short-term investments 18,155 3,953 23,019 1,283 11,092 17,134 862 1,583 Total debt 12,374 1,163 23,473 1,000 - 9,514 38 - Adjusted net debt 4,586 106 16,198 217 (10,962) (7,620) (824) (1,348) Equity 23,046 13,633 33,347 9,882 16,277 15,331 2,715 3,215 Total capitalization 35,421 14,796 56,820 10,882 16,277 24,845 2,753 3,215

Leverage Measures Debt/EBITDA 0.7x 0.0x 2.5x 0.0x -2.0x -1.4x -0.8x -4.4x EBITDA interest coverage 16.8x 55.9x 10.2x 517.1x 3822.1x 19.6x 579.3x 5300.4x Gross Debt/ Total Capitalization 34.9% 7.9% 41.3% 9.2% 0.0% 38.3% 1.4% 0.0% Debt/Equity 53.7% 8.5% 70.4% 10.1% 0.0% 62.1% 1.4% 0.0% FFO/Debt 1.3x 24.0x 0.3x 29.8x -0.4x -0.5x -1.0x -0.2x OCF/Debt 1.4x 27.0x 0.1x 34.5x -0.5x -0.6x -1.3x -0.3x FCF/Debt 1.0x 22.3x -0.2x 19.2x -0.4x -0.5x -0.4x -0.2x DCF/Debt 0.4x 32.2x -0.3x 19.2x -0.4x -0.8x -0.4x -0.2x FFO/Cash interest expense 0.0x 44.3x 9.2x 416.7x 2897.0x 13.7x 478.6x 4147.5x

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Rating Scores Summary

Business Profile Strong Industry and Operation Risk Profile Strong Macroenvironment Risk Low

Financial Profile aa+ Preliminary Leverage Profile aa Cash Flow Variations Neutral Debt Structure and Financial Policy Neutral Financial Volatility Neutral Investments 0 notch Final Leverage Profile aa Profitability Strong

Indicative Credit Score (ICS) a- Adjustment Factors Corporate Structure and Governance Neutral Liquidity Strong Supplementary Analysis Neutral

Standalone Credit Profile (SACP) a-

External Support Parental Support N/A Government Support N/A Issuer Credit Rating (ICR) A-

Note: ratings mentioned in this report are unsolicited rating.

Related Criteria

General Corporate Rating Criteria (15 March 2018)

Financial Adjustments and Ratio Definitions (07 May 2018)

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Corporate China

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