Bumper COVID demand

Investment Thesis

Instant noodle sales to see demand revival from COVID-19 resurgence. Instant noodles represented 44% of total sales. While the instant noodle industry reported a 7.7% decline in sales volume and a 7.3% decline in sales value y-o-y in 1H21, we expect instant noodle sales to resume in 2H21.

Potential to pass on cost to customers. The gross profit margin reported a contraction due to higher commodity prices. We expect the margin impact to lessen into FY22F, helped by pricing adjustment.

Expanding cash position with potential to raise payout. As of Jun’21, the net cash position stood at Rmb7.8bn (Dec’20: Rmb7.8). Tingyi has the ability to raise its dividend payout to raise its return on equity.