POA Takeaways
We hosted Tingyi in the POA conference. Here are the key takeaways:
Salient Points in Management Presentation:
- In March, Tingyi had outlined guidance of high-single digit topline growth, with beverages to outgrow noodle growth, while earnings should remain flat, or at a decline due to material costs. Since then, covid lockdowns and Ukraine-Russia war has changed the outlook, with better performance by noodles so far. Beverages saw slight growth in recent months, despite tough conditions. In the coming months, it will be beverages peak season (May-Sept), where it remains to be seen how outdoor consumption spending will rebound. No changes are made to the guidance until August potentially.
- Compare with previous lockdown in 2020, sales have been stable outside of Shanghai, except for transportation hubs, which had been disrupted by covid. Shanghai has been deeply impacted, particularly for beverages as it is considered non-sensitive items, with licenses required to be attained in order to send products to channels/ consumers. For consumption habits, consumers tend to purchase more bowl noodles over packet noodles initially, then more packet noodles as the lockdown lingers. As for beverages, consumers tend to prefer large packaging.
- Due to significant material costs increase, Tingyi has been actively driving price increase in products. Thus far, over 70% of noodle products have had a price hike compared with last year, with c.40% of beverages marking a price hike. Tingyi notes competitors may not have followed suit in some of the product categories, which they will look to raise promotions ahead.
Top 3 questions
Q1: How has COVID impacted sales in recent months?
Answer from mgmt: Instant noodle saw decent growth, due to an increase in at-home consumption. Packet noodle sales faired better than cup noodle, with lower asp and more convenience in cooking at home. Beverages saw better demand for family packs and large-packaging, and still achieved slight growth, despite tough conditions.
Q2: What is the expectation for beverage sales in the upcoming peak season?
Answer: Tingyi has been readying itself for the upcoming peak season. Tingyi has not launched new product series, but rather focused on investing on existing new series launched last year, including zero-sugar, sparkling drinks, mixed fruits etc, with new flavours introduced. Water sales have performed well, thanks to a more stable pricing strategy shift to Rmb2, and Rmb3 to stabilise its margin. Juices have seen recovery in the past 2 years, with increase demand for mixed fruit drinks. Previously, traditional Chinese-style fruit drinks were slightly impacted due to covid pandemic, as catering channel were hit.
Q3: What is the material cost impact, and margin impact ahead?
Answer: Tingyi has been steadily raising its prices due to upswing in material costs, such as palm oil, packaging costs (PET), sugar etc, since 2H21, with the latest price hike in February for mass-market noodles, and carbonate drinks. However, Ukraine-Russia war has further pushed material prices higher, which the recent price hike is unlikely to be able to offset. The management reckons margin pressure will be higher in 1H, vs. 2H, with expectation material prices would gradually ease in 2H, and price hikes made in 1H will be fully realized.