Tingyi (Cayman Islands) Holdings

Tingyi considers acquisitions with US$1.6b war chest

PUBLISHED : Thursday, 05 December, 2013, 6:00am
UPDATED : Thursday, 05 December, 2013, 6:00am


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Tingyi (Cayman Islands), PepsiCo's Chinese partner, is considering buying instant food businesses to boost growth after annual sales expanded at the slowest pace in eight years.

The maker of Master Kong brand ready-to-drink teas and snacks is seeking acquisitions, and will likely form a new strategic alliance next year, said chief financial officer Frank Lin, declining to provide details.

The firm is considering both domestic and overseas brands for deals and co-operations, he said.

Tingyi has formed ventures with PepsiCo, Asahi and others in the past three years to win customers as rising incomes on the mainland boost consumption.

The Tianjin-based company can leverage its US$1.6 billion of cash for acquisitions to stave off competition from global food companies such as Nestle.

"For the instant food business, we choose M&A instead of organic growth because it's faster to expand our presence in the China market," Lin said. No final decision has been made on the acquisition and alliance plans, and Tingyi will focus on deals on the mainland over the next five years, he said.

Tingyi's Hong Kong-listed company has gained 7.4 per cent this year, compared with a 5.5 per cent increase in the benchmark Hang Seng Index.

The company gets more than half its revenue from beverages, 43 per cent from instant noodles and 2.5 per cent from instant foods, which include sandwich snacks, muffins and egg rolls.

It is also importing infant formula from Asahi's Wakodo baby nutrition unit to sell in China this year.

Tingyi "has struggled to consistently gain traction in their instant foods segment" because of the fragmented market and fierce competition, said Jeremy Yeo, an analyst at Mizuho Securities Asia. Tie-ups and acquisitions would add to the company's competitive edge, he said.

Snack food provides growth opportunity as the instant noodles market has reached a mature stage, he said.

The market share of Tingyi's Master Kong-brand instant noodles this year is estimated at about 37 per cent, little changed from 2012, the largest in China, according to industry researcher Euromonitor International.

"Tingyi will almost certainly be able to make more money by augmenting the product mix and by raising prices, but they will have to do so carefully so as not to destroy demand," Yeo said.

The company could pursue deals in segments such as health foods, cookies, nuts, chocolate-based snacks and dairy products.

The foodmaker plans to pay out 50 per cent of its earnings as a dividend and will save the rest for possible acquisitions, Lin said. It held US$1.6 billion in cash and short-term investments at the end of September, according to data.

Sales this year will probably increase 17 per cent to US$10.7 billion, according to the average of 32 analysts' estimates in a survey.

Revenue rose 17 per cent last year, the slowest annual pace since 2004, according to data.