Narrow-Moat Tingyi To Have Slower Beverage Growth in 2022; Lowering FVE to HKD 14.90

We are increasing our moat rating for Tingyi to narrow from none but lowering our fair value estimate to HKD 14.90 per share from HKD 15.90 due to a lower structural growth assumption. Although we now believe Tingyi’s distribution network and entrenched relationship with retailers warrants a narrow economic moat, we do not see material upside to the stock versus our fair value estimate. The recent lockdowns in China have hampered beverage sales due to reduced foot traffic, whereas food quality issues have weighed on flagship instant noodle sales. Rising input costs will further exacerbate margin pressure in 2022. We see risks to 2022 sales growth guided by management in the first quarter, especially for the beverage segment. Our fair value estimate implies 25 times forward P/E, which is close to Tingyi’s historical average. Despite being priced at a slight discount versus our fair value estimate, we think there is near-term risk of growth undershooting company expectations.