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Business trends

Asian instant noodle makers see boost from pandemic-driven demand

Tingyi, Uni-President, Indofood and Nissin benefit from stay-at-home rules

Tingyi Holding, maker of Master Kong instant noodles, has been able to capture consumer demand across China.   © Reuters

HONG KONG -- The coronavirus pandemic has battered a wide variety of companies and industries across the globe, but makers of instant noodles have been an apparent beneficiary of countrywide lockdowns. With people in Asia the biggest consumers of the staple, manufacturers in the region are emerging as outperformers in an otherwise downbeat earnings season.

For Tingyi Holding, the mainland producer of China's top-selling Master Kong instant noodle brand, it has been a bumper year. Its first-half revenue rose 8% from the same period a year earlier to 32.93 billion yuan ($4.76 billion), while net profit soared 58.4% to a record 2.38 billion yuan.

Tingyi Chairman Wei Hong-ming described the company's first-half performance as "back to glory" in a statement this week.

What brought the Hong Kong-listed company's "glory" back was its instant noodle business. While its beverage segment, including its Pepsi-Cola licensee in China, saw a 4.1% dip in revenue and a 9.9% increase in net profit, the noodle segment recorded double-digit growth in both revenue and net profit, jumping 29.2% and 93.7%, respectively.

The key, according to Wei, was to "address the surging needs for instant noodles during the pandemic."

As more people stayed home because of lockdowns and social-distancing rules, instant noodles gained renewed traction in the world's most populous country.

"The reduced mobility of the population highlighted the importance of the markets in lower-tier cities and rural areas, and there has been an upward trend of consumers' stockpiling amidst the pandemic and preference to home dining and drinking," he said.

Tingyi was able to successfully capture consumer demand throughout China, with its established brand recognition and wide reach across the country. Indeed, Tingyi's first-half instant noodle sales outperformed the market, which grew 11.5% in mainland China, according to Nielsen's data referred to by Tingyi.

Anne Ling, a consumer staples analyst at Jefferies Hong Kong, on Tuesday raised her full-year net profit estimates to 4.244 billion yuan from 3.441 billion. She attributed one reason for her decision to "the company's ability to gain market share moving forward, benefiting from COVID-19 lockdowns as it was able to introduce high-end products to customers during this period."

Major ratings agencies have also raised their outlooks to positive from neutral, reflecting "the improvement in the company's credit profile and our expectation that its competitive position in instant noodles and ready-to-drink beverage will remain strong," S&P Global Ratings said.

Ying Wang, a senior analyst at Moody's Investors Service, said, "We expect Tingyi will maintain its strong financial profile over the next two to three years."

S&P and Moody's have assigned the same investable ratings level of, respectively, BBB-plus and Baa1.

Uni-President China Holdings, a rival of Tingyi, also has been a beneficiary of stay-at-home rules amid the COVID-19 outbreak.

"In the first half of 2020, the instant noodle business played an important role in responding to the global hygiene emergency situation," Chairman Lo Chih-Hsien said in its interim report this month.

The Hong Kong-listed arm of Taiwanese conglomerate Uni-President Enterprises is one of the top instant noodle manufacturers in mainland China. The company's food business -- with noodles at its core -- expanded its revenue 22% to 5.21 billion yuan, while profit for the segment jumped 30% to 448.09 million yuan.

"Consumers gained a new understanding of the safety and deliciousness of instant noodles, and the industry experienced a noticeable growth," Lo said. However, similar to Tingyi, Uni-President's beverage segment was comparatively sluggish, with revenue falling 7.4% while profit grew just 2.1%.

China is by far the largest consumer of instant noodles in the world. Demand in China, which includes Hong Kong, reached 41.45 billion servings last year, close to 40% of the global total, according to data as of May from the World Instant Noodles Association.

Asians in general have a big appetite for instant noodles. Seven other countries in the region -- India, Indonesia, Japan, the Philippines, South Korea, Thailand and Vietnam -- made the Top 10 list as measured by consumption volume.

Hong Kongers shop for instant noodles in January following the coronavirus outbreak. Demand across China reached 41.45 billion servings last year.   © Reuters

For Indonesia's Indofood CBP Sukses Makmur -- a food, beverage and seasoning spinoff of Indofood Sukses Makmur -- its noodle segment was a key driver in reporting revenue growth of 4.1% in the first half amid the pandemic compared with the same period last year. Sales of its noodles increased 6.3% to 15.492 trillion rupiah ($1.05 billion), while its gross margin improved by 1.1 percentage point to 22.6%, on higher selling prices and lower prices for wheat.

The company's noodle business is centered on its Indomie brand being sold beyond Indonesia's borders, including in other parts of Asia and Africa.

Jennifer Widjaja, an equities analyst at Sucor Sekuritas, upgraded the company's stock price rating to "buy" following the announcement of interim results in early August. Even though the beverage section remains weak, Widjaja wrote in a report that she is "expecting demand for its in-home products (noodles, food seasonings) to continue to excel, offsetting the out-of-home products."

Major Japanese and South Korean noodle producers recorded significant growth, as they are more reliant on that business compared with competitors in other countries.

Japan's Nissin Foods Holdings, the owner of the Cup Noodle brand, saw its net profit for the quarter from April to June more than double to 12.09 billion yen ($114.2 million) from a year earlier. Domestic rival Toyo Suisan profit jumped 76% to 8.4 billion yen during the same period. Both companies enjoyed sales growth at home as well as abroad. For Nissin, it was mainly in the Americas, mainland China and Hong Kong, and for Toyo Suisan in the U.S. and Mexico.

The Japanese noodle duo have been leading the country's stock market recovery -- both have surged more than 35% since the benchmark Nikkei Average touched its year low in mid-March. The companies are two of the Top 10 gainers in the Tokyo market, with market cap over 50 billion yen.

Nomura Securities analyst Satoshi Fujiwara reiterated his "buy" rating for Nissin last week, saying he expects the "high level of profit to continue over the medium term" as the company benefits from the pandemic-driven demand and growth abroad.

It is a similar story for South Korea's Nongshim, which saw its first-half revenue grow 17.2% from a year earlier to 1.35 trillion won ($1.13 billion). The maker of spicy Shin Ramyun noodles increased its domestic sales by 12% while its overseas sales surged 34%, mainly driven by its two major foreign markets, China and the U.S.

"COVID-19 being a turning point, Nongshim's overseas recognition has expanded," Shim Eun-joo, an analyst at Hana Financial Investment, wrote after the release of the company's interim results in mid-August. Like its Japanese peers, Nongshim's stock price has surged more than 50% this year, reaching 361,000 won as of Monday's close. Shim has set her target price at 500,000 won for the next 12 months, pending contributions from abroad.

Some of the Indian players, however, were not able to capture the boom. Nestle India, seller of the country's top brand, Maggi noodles, reported 2% growth in revenue for the April-June quarter. The company has a much larger nonnoodle business but was hit hard by production disruptions in April at the peak of the India's lockdown.

"One of the clear trends in the last four months has been increasing demand for convenient food," namely instant noodles, Sanjay Manyal, analyst at ICICI Securities, said in a research note.

"However, the company could not supply the products in April given most manufacturing facilities either remained closed or are working on very low utilization," he said, keeping the stock ratings at "hold."

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