Tingyi rises 9pc after mainland Pepsi deal
Tingyi Holdings, the mainland food and beverage producer, rose more than 9 per cent yesterday after it announced a deal to acquire 24 PepsiCo bottling plants and co-market Pepsi's juice and soft drink brands.
After the acquisition, the company will likely widen its lead against the Coca-Cola Company in terms of soft drink revenue in China. Shares in Tingyi closed 9.3 per cent higher, at HK$22.75 yesterday.
Tingyi is expected to benefit from marketing the US company's products via the licensing deal. Under the agreement, announced on Friday, Tingyi can manufacture, bottle, package, distribute, sell and promote Pepsi's sports drinks and bottled water on the mainland.
The Chinese company also gains the right to market co-branded juice drinks with Tropicana, which Pepsi owns.
A Citigroup report said the deal could help the penetration of PepsiCo's products by leveraging Tingyi's distribution network on the mainland. But it will take time for the bottling business to turn around. The management told analysts yesterday the bottling business could return to the black in three to five years.
Tingyi will pay Pepsi less for the concentrate that is used to make its soft drinks and juice, and will restructure management of the bottling company. Moreover, the distribution channels and expanded product portfolio will boost efficiency.
The deal brings challenges to Tingyi as it will need to invest more in bottling facilities on the mainland. The delivery radius for carbonated drinks is ideally 300 kilometres from a plant. Tingyi needs to decide how to optimise its resources on expanding the facilities for its own and Pepsi's brands.
Beverage demand on the mainland slowed in the second half, Tingyi told analysts. It said the market was expected to remain tough next year owing to the economic slowdown.
Price pressure looms as small manufacturers engage in price wars. The management said consumers were diversifying their purchases, which caused mainstream categories to lose market share.
The after-tax loss, in US dollars, of Pepsi's bottling business on the mainland last year, about the same amount it recorded in 2009