Input Cost Hikes and Food Safety Incident Weigh on 2022 Profits for Tingyi; Lowering FVE

Tingyi reported a strong top line in 2021 of CNY 74 billion, up 10% from last year, but the operating margin fell below our expectations at 5.5%, mainly due to higher input costs. We are lowering Tingyi’s fair value estimate to HKD15.9 per share from HKD 17.7 per share, after revising downward our fiscal 2022 and medium-term margin forecasts. The Russia-Ukraine conflict has exacerbated raw material price hikes, weighing on the near-term profit outlook. A food safety-related scandal involving one of Tingyi’s instant noodle suppliers has further dampened the sales outlook in our view. Shares are undervalued versus our fair value estimate as we think longer-term fundamentals remain unchanged. But we expect the near-term share price to remain pressurized due to the above headwinds on margins over the next 12 months.