Uni-President China Holdings - Steady optimism in 2025E
- 2024 results in line, with 10.9% y/y increase in net profit and drop in dividend payout to 100% (previously:110%)
- Jan-Feb sales delivered double-digit growth, signaling improving momentum, while refrigerators continue to support distribution strength
- BUY as we remain positive on RTD beverage growth momentum, with TP raised to HKD10, now pegged to 20x FY25 PE
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Jan-Feb saw double-digit growth in both categories. We expect UPC to deliver higher top-line growth in 2025. The company has turned slightly more positive towards instant noodle following a tough 2024, with product categories such as Tang Daren returning to growth since 4Q24. Meanwhile, we expect RTD beverages to deliver mid-to-high single-digit growth, mainly driven by volume and product mix. Jan-Feb started the year with solid results with double-digit growth and RTD beverages outpacing noodles, with the company attributing this to distributors’ confidence in UPC’s product offerings. In terms of raw material cost, the company saw PET and sugar prices fall, which was partly offset by higher milk powder prices, resulting in an expansion of the beverage margin, while instant noodles margin could be under pressure due to rising palm oil prices since last year.
Below are the key highlights from the results briefing.
Q: What is the profitability trend for beverages and noodles, and what are the cost trends for 2025?
A: Both food and beverage segments are showing improved profit margins, with increases of more than 1ppt each. In 4Q24, the profit margins of both categories increased by over 1ppt, with beverages performing slightly better. For 2025, raw material costs show mixed trends with the impact of higher palm oil prices, while the prices of other raw materials (PET, sugar) have trended down.
Q: What's the growth rate for January and February, and what's driving it?
A: Both food and beverages are showing double-digit growth in the first two months, attributable to product strategy and placement, and new fridge deployment. Channel inventory is normal and has improved compared to last year. Tea performance remains strongest.
Q: What's the plan for refrigerator deployment in 2025 and could you share the current progress?
A: Management views refrigerators as a strategic investment with strong returns: The company plans to increase deployment compared to 2023-24 combined. Capital expenditure for 2025 is projected at around Rmb1bn, with a significant portion for refrigerators.
Q: Are plans in place to increase prices, and how is the company approaching its product mix?
A: The company has no plans to increase prices, and is instead focusing on improving its product mix, the development of more premium products at higher price points (while maintaining affordable options) and restoring price stability by reducing promotional discounting in some categories. For beverages, the company noted it maintained prices for 1L and family-size products, despite selective distributors raising prices in certain regions. The company believes maintaining affordability is vital for consumer loyalty
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Q: How is the company approaching the sugar-free tea segment and what's the outlook for milk tea?
A: Sugar-free tea is now an essential in the market: Management estimates milk tea sales market could reach RMB70-100bn. It has been relatively aggressive in launching sugar-free products in 2024 and will continue at the same pace in 2025. Sugar-free original milk tea was launched in 4Q. For milk tea overall, the original flavour continues to grow, while consumer response to some new variants has been mixed.
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