New | Tingyi sees uncertain recovery after disappointing first half, analysts say

Chinese instant noodle maker Tingyi (Cayman Islands) Holding may be in hot water after posting weaker-than-expected earnings in the first half of the year with wide losses in sales and market share, analysts said.

The company, which is the largest producer of instant noodles and bottled water in China, saw net profit decline nearly 65 per cent in the first six months this year to US$70 million (HK$542 million), according to Tingyi’s filing to the stock exchange. Tingyi’s second quarter performance decreased by 87 per cent compared to 2015, falling short of Citigroup analyst expectations of a 30 per cent drop due to “substantial” operating debt from decreased sales and an unexpectedly low gross profit margin. This led to the weakest second quarter result since 2004.

Tingyi’s product sales for instant noodles and beverages tumbled 11.6 per cent and 21.1 per cent in revenue respectively compared to last year, according to their interim results.

This continues a trend of “disappointing” quarterly results for Tingyi in the past three years, a Citi report said last week. In the past year, the company saw its stock price almost halve from a high of HK$14.42 last October. The share closed of HK$8.35 on Tuesday. Moody’s Investors Servicebelieves Tingyi will end the year with depressed earnings because of its weak performance in the first half.

As a dominant instant noodles and beverage producer in the Chinese market, Tingyi’s losses reflect a larger uncertainty in the food and beverage industry. The country has seen a changing landscape for low-end consumers, with China’s consumption of instant noodles down 12.5 per cent last year, according to a report from consulting firm Bain. Rising standards of living in China have forced companies such as Tingyi to upgrade their products.

In response to recent losses, Tingyi has consolidated its product marketing and launched new products, a Merrill Lynch report said. For its noodle products, Tingyi plans to move its 4.5 yuan (HK$5.2) products to the 5 yuan territory to target consumers more focused on health and flavour. It also plans to bring back its Class Series noodles. The company said it will diversify its beverage products — including tea, water, probiotic drinks, and carbonated drinks — to cater to different consumers.