Tingyi reported 19.8% YoY net profit growth on 0.3% YoY total revenue growth in 2024. GPM improvement was well above expectations due to 1) higher ASP, 2) benefits from sales structure, 3) optimised production efficiency, and 4) cost tailwinds. We stay bullish on Tingyi’s profitable growth visibility, with a 3-year EBIT CAGR of 10.4% from 2024 to 2027. Maintain BUY rating, with a higher TP based on 18.0x 25E P/E.
Key Factors for Rating
FY24 revenue in-line and net profit slightly beat. Tingyi reported its FY24 results on 24 March after the market close, and hosted an earnings briefing on 25 March. In 2024, total revenue was up 0.3% YoY to RMB80.65bn, 1.1% below BOCIe. By segment, beverage sales increased 1.3% YoY and accounted for 64% of total revenue, primarily driven by RTD tea (+8.2% YoY). Instant noodle sales recorded small decline (-1.3% YoY), attributable to sales volume loss post price hikes. Overall GPM rose 2.7ppts YoY to 33.1%, due to higher ASP, mix upgrade, generally lower commodity prices, and optimised productivity & utilisation rates. In particular, in 2H24, its beverage and instant noodles segment GPM increased 3.9ppts and 1.9ppts YoY, respectively, both beating expectations. Overall SG&A expenses ratio was up 0.4ppt YoY in 2024; effective tax rate was 28.7% (2023: 26.4%). As a whole, shareholders’ profit grew 19.8% YoY to RMB3,734m, 5.8% above BOCIe.
FY25 guidance. Management looks for LSD%-to-MSD% YoY top-line growth in 2025, likely backed by LSD% YoY growth in instant noodle sales and MSD% YoY growth in beverage sales. Tingyi’s 1-2M25 sales growth was basically in-line but still lagged the guidance. Looking ahead, management expects to continue regaining market share, with nil price increase for 2025. In terms of profitability, GPM expansion trend is intact. SG&A expenses ratio may slightly improve YoY.
Cash flow and capex. In 2024, Tingyi recorded 50% YoY growth in terms of net CFO, with a net-CFO-to-EBIT ratio of 1.38x (2023: 1.19x). Capex was roughly flat YoY at RMB3.6bn in 2024 and will be above RMB3bn in 2025. Total number of display refrigerators nationwide is about 1.2-1.3m. FY25 dividend payout ratio would be unchanged at 100%.
Accelerated product innovation & channel diversification. Product wise: “Mini Bucket” witnessed explosive growth due to the rise in scenarios of outdoor settings, between-meal snacks and mid-night snacks. Management highlighted its recent launch of “Fresh Q Noodles”, with the strength of cutting-edge non- fried instant noodle technology and 3 signature flavours. “Yu-Pin Banquet” quickly gained popularity via short-video streaming and live streaming. In 1Q25, Tingyi introduced “pH9.0 Alkaline Water with Electrolytes” to cater for health-conscious consumers. Channel wise: management feels more optimistic about the growing presence in emerging channels (e.g. snack food stores, e-commerce platforms).
Key Risks for Rating
Risks: 1) weaker-than-expected consumption sentiment in China; 2) intensified market competition; 3) rise in commodity prices; and 4) food safety issue.
Valuation
We revised down our top-line forecasts for 2025-26 by 1%/1%, mainly to factor in slightly slower-than-expected rebound in flagship products (e.g. Classic series noodles, 1L-packed RTD tea and juices) post price hikes. We revised up our GPM forecasts for 2025-26 by 1.2/1.5ppts, given accelerated efficiency improvement, coupled with modest cost tailwinds. Overall, we revised up our net profit forecasts for 2025-26 by 8%/10%.
Maintain BUY rating. Our new TP of HK$14.60 is based on 18.0x 25E P/E (prev.:17.0x 2024-25E avg. P/E).