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报告摘要

HK/China Consumer Staples Summary

Core Content

This report provides an analysis of the Hong Kong/China consumer staples sector, with a focus on key companies and their performance and outlook for 1H14 and beyond. The sector has underperformed year-to-date, but there is growing interest among investors due to improved sales and earnings growth expectations in the second half of 2014. The report outlines the current market sentiment, forecasts, and valuation metrics for several major players in the sector.

Main Points

Sector Outlook: The market has been overly bearish on the instant noodles space, but the report anticipates an inflection point in 2015F as competition may ease.
Performance Forecast: The average NPAT growth for names under coverage is expected to be around 3% YoY. Some companies are projected to have stronger growth, while others face challenges.
Top Picks: Tingyi is the top pick, followed by Hengan and Want Want. Ajisen and China Foods are also highlighted among smaller caps. Mengniu and Biostime are recommended for SELL.
Investor Sentiment: Investors are still underweight the sector, but some are considering re-entry. Some bears view the sector as a structural de-rating story due to unexciting earnings growth.

Key Companies Overview

Company	Rating	NPAT Growth (YoY)	Key Issues and Highlights
Tingyi	Buy	45%	Strong beverage margin expansion, potential EBIT margin improvement, incremental earnings from Pepsi
Hengan	Buy	5%	Strong sanitary napkin sales, disciplined A&P, but NPAT fell due to forex loss
Want Want	Buy	7%	Growth bottleneck, Hot-Kid milk sales underperform, substitution risk for rice crackers
Mengniu	Sell	22%	Sales growth from UHT milk is slowing, competition in high-end UHT milk is intensifying
Biostime	Sell	-20%	Restructuring, weak sales, GPM erosion, and opex surge. Concerns over IMF price/margin decline
China Foods	Buy	5%	Struggling wine sales, but potential turnaround in 2015F
CRE	Sell	-11%	Negative NPAT due to retail operating deleveraging and food unit loss
UPC	Hold	-30%	Sluggish top-line growth, widening noodles loss
Ajisen	Buy	5%	SSSG bottomed out, new product strategies in pipeline
Goodbaby	Sell	5%	Losing market share, potential loss of Dorel's orders

Key Trends and Outlook

Tingyi/UPC Competition: Investors are bearish on Tingyi and UPC due to stagnant sales and irrational competition. However, the report suggests that UPC may refocus on core products, leading to a profitability reversal in 2015F.
Biostime's Risk: Despite restructuring, Biostime faces uncertainty and potential negative earnings due to industry trends and internal challenges.
Mengniu's Challenges: The report highlights the threat to Mengniu's Milk Deluxe due to competition, both domestic and international, which could affect EBIT and ROE.
Want Want's Growth: The report notes that the growth bottleneck is a concern, especially with the underperformance of Hot-Kid milk sales.
Hengan's Position: Investors are cautious about Hengan's leadership in the sanitary napkin segment due to competition from Unicharm and Kotex, and low brand loyalty in the tissue segment.

Valuation and Financial Metrics

P/E and P/B: Valuation metrics vary, with some companies showing higher P/E and P/B ratios than others. Tingyi and Want Want are noted for having higher valuations.
Dividend Yield: Companies like Biostime and CRE show higher dividend yields, indicating potential for income.
EV/EBITDA: The EV/EBITDA ratios suggest that some companies are overvalued or undervalued relative to their peers.

Analysts

Jacqueline Ko, CFA: (852) 2268-0633 | jacquelineko@kimeng.com.hk
Benjamin Ho: (852) 2268-0632 | benjaminho@kimeng.com.hk

Summary of 1H14 Earnings Preview

Strong Results: Mengniu and Tingyi are expected to report strong NPAT growth (22% and 45% respectively) due to product mix improvements and cost control.
Uninspiring Growth: Ajisen, Hengan, and Want Want China are projected to have weak NPAT growth (5% to 7%) due to sluggish sales and margin pressures.
Negative Growth: Biostime, CRE, UPC, and Goodbaby are expected to report negative NPAT growth (-20% to -30%) due to various challenges such as weak sales, GPM erosion, and market share loss.

Conclusion

The report emphasizes the importance of monitoring key financial indicators and market trends for each company in the consumer staples sector. While some companies like Tingyi and Hengan show promise, others such as Mengniu and Biostime face significant risks. Investors are advised to consider the sector's valuation and growth potential carefully.

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