Nissin Foods Co Ltd - Results miss, but cautiously optimistic
- FY23 came in below market expectations on weaker-than-expected 4Q23 sales trend dragged by HK/China regions
- Jan-Feb 24 sales gradually rebounded q-o-q, while flattish y-o-y
- Cut FY24E earnings by 12%, with new TP at HK$6.60; Trading at 15x FY24E PE, the Company still reflects opportunity to increase its penetration across major markets
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Hong Kong operations remain impacted by outbound travel. By region, HK operations remained impacted by outbound travel and weaker-than-expected recovery in tourist spending in the region. The sales volume of bag-type instant noodles has declined, while that of cup-type instant noodles has risen in 2023. Distribution business also recorded a gradual rebound. Vietnam business is also progressing well, with Jan-Feb 24 sales reporting double-digit growth. However, as the shift in the consumption appetite remains structurally negative, expectations for HK operations remain quite soft in 2024.
China also reflects a mixed outlook. Traditionally, Nissin Foods has a strong foothold in Southern China on the back of a greater migrant population and demand for instant noodles. South China remains impacted by the shift in production demand towards Southeast Asia. On a more positive note, Nissin Foods noted decent demand coming from North, East, and Central China thus far. At the moment, the bulk of the sales comes from container-type noodles, with the opportunity to expand on bag-type sales in the medium run.
Margin outlook. The company has enjoyed a favourable GP margin trend since 2H22, thanks to a drop in palm oil and, to a lower extent, wheat prices. In Jan-Feb 24, the company has noted the continuation of favourable palm oil price trends, with a slight uptick in March. While we expect the instant noodle GP margin to hold up, we expect the increased weightage of the distribution business in the product mix could offset this trend.
So far in 1Q24, Nissin Foods has reported a q-o-q improvement in the HK/China regions, thanks to the seasonal rise from CNY sales, or largely flattish in y-o-y terms. In 2024E, the company has indicated that it plans to achieve low-mid single-digit top-line growth for HK/Other Asia, while China should achieve mid-high single-digit top-line growth. The company hopes to see a stable or slight improvement in its OP margin. We cut our earnings by 12% in 2024E and introduce 2025E forecasts. We trim our TP to HK$6.60, pegged to 20x FY24E PE (previously: 24x FY23E PE).
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