The Company reported 10.9% YoY net profit growth on 6.1% YoY total revenue growth in 2024, in line with our estimation. Looking ahead, we expect UPC to sustain strong growth momentum with a net profit CAGR of 14% from 2024 to 2027. We particularly like its proven R&D capability for monetising on F&B consumption trend and continuously improving product mix. Maintain BUY rating on UPC with a higher TP at HK$9.30.
　　Key Factors for Rating
　　FY24 results in line. UPC’s total revenue grew 6.1% YoY to RMB30,332m in 2024, 0.6% lower than our estimation. By segment, beverage sales grew 8.2% YoY and accounted for 63.4% of UPC’s total revenue, mainly driven by RTD tea (+13.1% YoY). Food sales experienced modest acceleration in 2H24, with YoY growth of 2.1% (1H24: 0.9%), outpacing the industry average. Total GPM rose 2.0ppts YoY to 32.5% (food: 26.5%; beverages: 36.6%) in FY24; S&D expenses ratio was slightly up 0.2ppt YoY to 22.2%. As a whole, shareholders’ profit grew 10.9% YoY to RMB1,849m in FY24, same as our estimation.
　　Outlook. Management expects YoY total revenue growth for FY25 to be steady and not less than 6%. In 2M25, both food and beverages segments saw DD% volume-driven YoY sales growth, with a healthy channel inventory level, which clearly surprised investors. Also, management reaffirms that NPM expansion will mainly rely on 1) product mix improvement, 2) promotion cuts, and 3) efficiency.
　　Cost tailwinds may last in general (but to a smaller extent); pressure from near- term unfavourable price trend of palm oil & milk powder looks manageable. S&D expenses ratio could be roughly flat YoY, subject to competition dynamics. Capex will stay at nearly RMB1bn for FY25, with a larger portion allocated to investment in display refrigerators. Total number of UPC’s controllable display refrigerators exceeded 1,000 thousand (with a net increase of 100 thousand in FY24) and is expected to increase faster in FY25 vs. FY24.
　　Key Risks for Rating
　　Risks: 1) intensified competition; 2) challenges in strategy execution; 3) change in consumer preferences; 4) cost inflation pressures; and 5) food safety issue.
　　Valuation
　　We fine tuned our revenue and profitability forecasts for 2025-26E. Looking at the bigger picture, non-alcoholic drinking demand is resilient & non-cyclical, and UPC may continue to outperform the market with solid brand awareness, well- positioned product family (plus interaction with channel and end users in depth), and increasing efforts for penetration. For food segment, UPC is grabbing market share, and we think instant noodles TAM growth potential is just overlooked by many investors. Our new TP is HK$9.30 based on 18.0x 25E P/E (prev.: 17.5x).