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Uni-President China shares spike 14% despite dip in revenue, profit

Noodle maker's target price pushed up, but sales decline sparks caution

HONG KONG -- Uni-President China Holdings, the mainland Chinese unit of Taiwanese food and beverage conglomerate Uni-President Enterprises, saw its share price spike up over 14% to reach a new year high during the morning trading session in Hong Kong on Wednesday.

That came after the instant noodle and non-alcoholic drink maker released its first-half earnings results after the market closed a day earlier, which saw its net profit attributable to shareholders dropped 26.5% on the year to 569.6 million yuan ($85 million) in the first half of the year.

Revenue also declined 7.1% to 10.88 billion yuan, with gross margin down 3.3 percentage points to 33.6%.

Although both revenue and profit dipped, the market responded positively since "the results exceeded the expectation," said Linus Yip, strategist at First Shanghai Securities, based in Hong Kong. He also added that the issue did not get caught up in the recent rise of the whole market. In the morning session it closed 7.6% higher at 6.40 Hong Kong dollars.

According to Daiwa Capital Markets, net profit beat its estimate by 23%, as the government subsidy income was 78 million yuan more than anticipated and cutting in operational cost. However, its revenue has "disappointed, particularly those of the juice and tea segments," due to losses in market share. It is revising up its 12-month target price to HK$5.9 from HK$5.3, but maintained a "hold" rating.

"Our target multiple still marks a premium of about 20% to the average PER of the key packaged food and beverage players in China on Uni-President China's likely faster earnings-per-share growth over the 2017-2019 period," its analyst Anson Chan said in a note on Wednesday.

The company said its instant noodles business inched down 1.4% in revenue to 3.95 billion yuan in the first six months. It maintained market share at 20.9% during the same period.

Revenue of its overall beverages business dropped 11.4% to 6.6 billion yuan, dragged down by its tea and juice drinks. But milk teas fared better, posting 10.3% growth in sales.

Looking forward to the second half, Uni-President China's management expected better cost control and a greater focus on driving consumer demand and brand awareness rather than on expanding channels.

In April, Alex Lo, chairman of Uni-President China's parent Uni-President Enterprises, said at an earnings conference in Taipei that it expected the Chinese arm's profitability to improve with better inventory control.

Uni-President China has been working on reducing inventory since the third quarter of last year.

For the whole of last year, the company said fierce competition and excess inventory pulled down sales and profit. Revenue slid 5.1% to 21 billion yuan and net income plunged 27.2% to 607 million yuan in 2016.

Caixin Global reported in July that Uni-President China has closed two plants in the northern city of Shijiazhuang and eastern Xuzhou city.

Employees were offered extended vacation leaves of absence beginning in the first quarter and production has recently been suspended, according to the report.

Uni-President China responded, saying, "The temporary closures are the results of its strategy to improve products and upgrade facilities."

The two plants had a combined monthly capacity of 520,000 cases, producing teas and juices as well as the once-popular "Haizhiyan sea-salt" drinks.

NQN staff writer Chinatsu Hayashi contributed to this report.

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