3Q in-line with expectations; moderating growth with easing cost trends
- UPC released 3Q23 net earnings in-line with market expectations.
- Noodle sales decline narrowed in 3Q23 which is largely expected, while RTD beverage sales growth slowed to mid-single digit growth
- Our last rating stood at a BUY, TP at HK$8.5
UPC (220.HK) released 3Q23 preliminary results with net earnings rising by 10% to Rmb590m, while 9M23 net earnings reached Rmb1467m, accounting for 92% of full-year consensus estimates, in-line with market expectations. By segment, decline in noodle sales has narrowed vs that in 2Q23. Of which, Rmb5 above noodles have resumed growth in 3Q23. RTD beverages, on the other hand, recorded a mid-single digit topline growth, a slight slowdown relative to 1H. Of which, Assam milk tea reported better performance relative to 1H23, while tea recorded low-to-mid single digit topline growth. GP margin recorded a slight improvement, thanks to controlled raw material costs. Palm oil prices remained weak while sugar price hikes appeared to be more under control.
Looking ahead, we expect expect noodle sales could see some pressure on weaker demand in bag noodles which could drive a low-mid single digit growth rate ahead in FY24E. As RTD beverages enter low season, the Company expects to see more investment driven into catering channels to lay foundation for FY24. Our last rating stood at a BUY rating, with TP at HK$8.5