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Food & Beverage

Chinese consumers shift from instant noodles to soft drinks

Pandemic-driven consumption patterns fade for Tingyi and Uni-President

Instant noodles were consumed in huge amounts during the lockdown in China early last year but such demand faded with the return to normality and as the pandemic comes under control.   © AP

HONG KONG -- Noodles are out and beverages are back in China, according to the latest results from a cluster of consumer brands that show how tastes have shifted as the coronavirus pandemic has ebbed.

One of the few clear winners during the pandemic has been instant noodles. As millions of people stayed at home under lockdown orders, they devoured bowls of fast-food noodles in greater numbers. But as the outbreak was brought under control and ordinary consumption patterns gradually returned, the urgent demand for the convenient food staple has faded.

Tingyi Holding, China's biggest maker of instant noodles with its top-selling Master Kong brand, reported a 29% increase in instant noodles sales in the first half of 2020 compared with a year earlier, but its full-year earnings report on Monday showed a deceleration in sales growth to 6.1% for the second half.

The contrast was much sharper for its main rival Uni-President China Holdings, which reported results on Friday. The company's food segment, which consists mainly of instant noodles, managed double-digit year-on-year growth for the full year, but its revenue in the second half fell 0.4%, following a 22% jump in the first half.

The top two consumer food staple manufacturers recorded relatively healthy profit figures for 2020, while a wide range of industries and companies around the world were battered by the impact of COVID-19.

Tingyi reported a 9.1% increase in consolidated revenue of 67.61 billion yuan ($10.38 billion), while net profit rose 22% to 4.06 billion yuan. Uni-President's overall sales grew 3.4% to 22.76 billion yuan and net profit rose 19% to 1.62 billion yuan.

Fortunately for the two Hong Kong-listed companies, the other half of their main businesses -- bottled and canned tea, coffee, juice and water, and Tingyi's Pepsi franchise -- made a sharp recovery in the second half of last year to offset slackening demand in their noodle businesses.

Consumption of these nonalcoholic beverages were depressed under last year's lockdown, but as people resumed a somewhat more normal lifestyle, demand started to pick up. Tingyi and Uni-President -- both of which have their origins in Taiwan -- showed a similar trend in that business, too.

"It was not until the second half of 2020 that the sales of the instant noodle business returned to a normal level and the beverage segment rejuvenated after a slight decline in the first half of 2020," Wei Hong-Ming, chairman of Tingyi, said in a statement to the Hong Kong Stock Exchange on Monday.

That change in consumption patterns in China is evident from the results of other major companies.

South Korea's Nongshim Holdings, the maker of Shin Ramyun spicy noodles, saw its sales in China grow more than 30% in the first half, while they cooled to about 6% in the second half. While not as dramatic, Japan's Nissin Foods reported a slight deceleration in growth in the second half. Both companies sold around $300 million each last year in mainland China.

Meanwhile, Swire Pacific's Coca-Cola franchise business in mainland China took an opposite path from the noodle companies, with a 1% drop in sales for the first half followed by a 9% increase for the July to December period.

That recovery was a silver lining for the Hong Kong conglomerate, which suffered a consolidated net loss of 11 billion Hong Kong dollars ($1.42 billion) in 2020, due to dismal performances from its airline subsidiary Cathay Pacific Airways and its marine service business, the latter of which was hit by continued weakness in its operation that supports offshore oil exploration.

One analyst said that it was still too early to determine whether the noodle industry's growth is "structurally restored."   © Reuters

Swire Pacific's beverages division "has really been the high spot of the year," Merlin Swire, the company's chairman, told reporters in an earnings call earlier this month. "Business was adversely affected by COVID-19 for a while in the early part of the year, but recovered well -- outside Hong Kong, particularly in Chinese mainland."

The company operates the Coca-Cola business in 11 provinces in China and the city of Shanghai, which made up half of its sales in its beverage business that earned more than HK$2 billion last year. It also has a foothold in Hong Kong, Taiwan and part of the U.S.

The outlook, according to analysts, is mixed.

Xiaopo Wei, an analyst at Citigroup, wrote after Tingyi's earnings on Monday that "it is still [too] early to call whether [the] noodle industry's growth is structurally restored" and is keeping a "neutral" rating on the market leader's stock.

Anson Chan and Jonathan Ho, who jointly cover Uni-President and Tingyi at Daiwa Capital Markets, cut their respective ratings to "hold" after the companies' results. Particularly for Tingyi, Chan pointed to rising material costs -- namely plastics used for drinks bottles and palm oil for noodles -- as a major concern going forward.

While Jefferies' analyst Anne Ling reiterated "buy" ratings for the two market leaders, her outlook on noodles is bleak. Ling said that Tingyi's sales is expected to grow by 4% in 2021, supported by an 8% increase in beverages, but a 2% decline in noodles.

Shares of Tingyi, which reported its results after the market closed on Monday, tumbled 7% in Tuesday trading in Hong Kong. Uni-President, which lost 3% on Monday following its Friday earnings report, rose 1.3% on Tuesday.

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