Noodle King Tingyi Expects 35-40% Net Profit Drop

Master Kong noodle king and Pepsi, PEP  partner Tingyi Cayman Islands Holdings,  322 HKG, warned today that net profit would be down 35-40% for the year ended 12/15. 3 reasons were given as an explanation:

  • Noodle sales volume was down due to price increases for quality upgrades.  Sales channel adopting a “wait and see” attitude in short-term. (Read consumers rejected price increase.)
  • Beverage business making pro-active provisions for “diminution in value.” (Read asset impairment due to declining future sales). Despite two ground-breaking deals with Pepsi: 2011 shares for bottling ops; 2014 exclusive pact with Shanghai Disney.  (Shanghai Disney faced numerous delays, now projected to open in June, 2016. )
  • Fluctuating exchange rates

This announcement was especially shocking given the last earnings report, which showed declines far less than now currently projected. (In millions of $US, except eps.  Despite Hong Kong listing, shows numbers in $US millions.)

tingyi 3 months 9 months

Although revenue and profits had been dropping, both for the quarter and for the year, there is nothing comparable to a 35-40% drop.  While there is obvious concern that the noodle price increase hit a major speed bump, even more concerning is the apparent markdown of the beverage business.  Although Disney, DIS US, hasn’t opened as scheduled, it’s a delay not a cancellation.  Why take a markdown four months before the opening?  Rationally there could be something going on from either Pepsi or Disney that’s not being stated.  (Shanghai Disney Resort is a jv with 57% held by the PRC group, Shanghai Shendi Group.)

The need to markdown the beverage unit reinforces a trend seen in the 3rd quarter where revenues and profits showing a significant decline in this segment. ($US Millions)

Tingyi beverage decline major

The much larger decline in the beverage profit versus the noodles profit had a significant hit on the beverage sector’s impact on total profit compared to 2014.

Tingyi Revenue Profit Segm

In the last quarterly report,  dried noodles in the overall Chinese market were noted to be in a downward recessionary spiral, reflecting a market yoy decline of 2.8% volume, with a slight .4% increase in sales dollars. Beverage sales volume and dollars had increased by 0.3% and 2.5% yoy respectively in the third quarter of 2015.

Despite the myriad of reports over the transition to a consumer economy in China, this report throws a spanner into that thesis.

Stock facts: HK 322, Tingyi Caymen Islands Holding

 

Tingyi Stock

 

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