Uni-President China Upgraded to Add from Reduce, 18% Upside
CIMB has upgraded food and beverage maker Uni-President China (220.HK) to add from reduce as hot weather has boosted demand for its beverages.
The brokerage lifted its target price to HKD7.10 a share from HKD4.50 a share on expectations that warm weather and low inventories among retailers will see beverage sales growth return to positive territory in the second quarter. CIMB expects the company's ready-to-drink tea business to recover in the first half.
The broker is also upbeat on the outlook for the company's noodle business. It argues that its premiumization strategy should pay off, with noodles sale growth of 4% forecast this financial year.
CIMB reckons the company will also deliver better expense control:
We expect the distribution expenses ratio to fall by 1.8% pts to 26.1% in FY17F, as UPC focuses on cost cuts and channels marketing resources on key products. UPC carried out a distribution channel reform in 1H17F, combining the sales teams of both beverage and noodle segments into one. While we expect the reform to aid UPC in driving sales growth and cutting distribution expenses in the medium term, topline growth may be temporarily impacted in 1H17F due to adjustments to the sales teams and distributors, in our view.
Uni-President China was last trading up 2.8% at HKD6.20 a share. The stock is up 13% this year.