Maintain "Accumulate" rating. We forecast Tingyi's (the "Company") total revenue to record a 3-year CAGR of 6% from 2022 to 2025. We forecast its shareholders' profit to reach RMB3,505 mn/ RMB4,084 mn/ RMB4,485 mn for 2023-2025. Tingyi's great restoration of profitability in 2023 is clearly visible mainly due to relief on cost pressure. We set TP at HK$13.50 based on 20.0x 2023F PER.
　　Regaining market share remains a priority on the agenda for the instant noodle segment. According to our estimation, Tingyi's instant noodle sales should record low single-digit YoY growth in 1H23. Outdoor consumption scenarios (such as transport hubs and tourist spots) thrived thanks to higher traffic volume, whilst demand from factory workers weakened due to lower utilization of capacity in China. Structural changes in consumer buying behavior paint a mixed picture - snack noodles and mid-priced noodles (in particular for those cost-effective products with large-portion offerings) sustain a rapid growth, whilst high-end packet/ bowl noodles still face challenges owing to softened consumer spending. The senior management is optimistic about its instant noodle business outlook based on steady recovery in market share over the past year after price hikes were implemented.
　　Stay bullish on the beverage segment. According to our estimation, Tingyi's beverage sales should achieve YoY growth of nearly 10% in 1H23. We expect juices and bottled water to maintain robust growth momentum in 2H23. The former has been a staple in many diets of a rising number of health-conscious consumers (especially in at-home scenarios as well as restaurants), and the latter is the most obvious beneficiary from the booming outdoor activities at this stage. We expect its beverage sales growth to further accelerate during the peak summer season.
　　Stronger gross margin would allow some room for Tingyi to increase investments in sales and distribution channels. Due to ongoing material cost stabilization (in particular palm oil and PET resin), we forecast its overall gross margin to be 30.3%/ 30.7% in 2023/ 2024. With an aim to consolidate its market share through brand building and A&P activities, Tingyi is more likely to keep S&D expenses ratio at present levels for 2023-2024. Its CAPEX may also remain stable (with 2/3 for recurring maintenance and 1/3 for increasing the number of commercial refrigerators). Regarding higher net borrowing cost and more balance sheet pressure, Tingyi may not declare special dividends.
　　Risks: intensified market competition; unexpected price movement in raw materials or packaging components; food safety issues.