Consumer China

Tingyi – seeking a boost from PepsiCo

  • Published 12 Jan 2012

In spite of a brisk instant noodle business, the company’s mainstay beverage sales have been hit, but a tie-up with PepsiCo may hold promise.

Despite disappointing 3Q11 results for Tingyi (0322:HKG), the market has been optimistic on a strategic alliance between the company and PepsiCo (PEP:NYSE), a deal still awaiting the approval of China’s Ministry of Commerce (MoFCOM). Tingyi’s stock price is up approximately 14% since the tie-up was announced on November 4 2011. The Hang Seng Index (HIS), by contrast, has dipped 4% during the same period. However, caution prevails over the slowdown of Tingyi’s beverage sales, especially its core ready-to-drink (RTD) tea products, as well as the uncertainty over returning PepsiCo’s current loss-making China arm to profitability once the deal is approved. Given rising labour costs and high raw material prices, coupled with the traditionally slow winter for beverage consumption, management expects Tingyi’s profitability to remain challenged in 4Q11. We thus expect the company to post 20% YoY top-line revenue growth and a 10% YoY net loss for the full year 2011. The company can expect margin recovery in 2012 thanks to lower raw material prices.

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