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Kandy Wong

Uni-President China Holdings, the mainland branch of Taiwan's largest food and beverage conglomerate, hopes to revive investor interest in Taiwanese firms, but it all may come down to pricing.
Investors who have listened to Uni-President's initial public offering presentation came away impressed. 'Domestic consumption stocks have a bright future on the mainland,' said Tung Tai Securities associate director Kenny Tang Sing-hing.
And, in the case of Uni-President: 'Their instant noodle brand has a good reputation in China.'
But, the company may face an uphill climb. Not all Taiwan food companies have fared well. For example, shares of mainland meat processor DaChan Food Asia, a unit of Great Wall Enterprise (Taiwan), have fallen more than 20 per cent since its listing in October.
According to Uni-President's prospectus, its price-to-earnings ratio will be in the range of 30.8 to 38.4 based on its offering price range of HK$3.75 to HK$4.68.
'The price-to-earnings ratio of related stocks, such as Tingyi,  is now around 20 times,' said Ricky Tam, chairman of Hong Kong Institute of Investors. 'If the PE ratio is set at too high a level for Uni-President, it will appear unreasonable, and its share performance may be negatively impacted.'
Uni-President, which will debut on the Hong Kong stock exchange on December 17, kicked off its marketing roadshow on Monday. It plans to raise up to HK$4.13 billion in its initial public offering by selling 881.72 million shares at between HK$3.75 and HK$4.68 each.
Around 36 per cent of the total proceeds, or HK$754.3 million, will be used to expand the company's existing beverage capacity in Guangzhou, Chengdu, Kunshan and Xinjiang.
It also plans to build new beverage and instant noodle production facilities in Beijing and Kunming.
Investors are optimistic not only because of the huge domestic market, but also because of the success of another Taiwanese-managed food and beverage company - Tingyi (Cayman Island) Holding Corp, which operates the well-known brand Master Kong.
But analysts said frequent roll-outs of new products and extensive distribution networks would be necessary for the company to enhance its brand reputation.
Uni-President stated in its prospectus that expanding and developing distribution networks to further penetrate rural areas where incomes were rising would be one of its priorities after  going public.
The company said in its preliminary prospectus that another 35 per cent, or about HK$734.8 million, of the net proceeds would be used to make  strategic investments on the mainland.
Uni-President  has entered into a number of partnerships, including a beverage joint venture with Changchun-based Jinmailang and Kirin, as well as a strategic stake in Tianjin Wondersun Dairy and Andre Juice. The company  also plans spend  HK$598.4 million, or 28 per cent of the offer proceeds to upgrade its sales and distribution network, with the  balance  for working capital.
According to ACNielsen, Uni-President ranked as the second-largest manufacturer of juice drinks on the mainland, with its 'More' brand of orange juice drink the bestseller. The company has a 29.1 per cent market share.
Figures from the company showed that sales of its juice and ready-to-drink tea, Chai-Li-Won, recorded compound annual growth rates of 14.9 per cent and 44.4 per cent as a result of the increased popularity of non-carbonated beverages as consumers become more health conscious.
The company also produces over 260 instant noodle products under the Lai Yi Tong brand. These include bowl noodles, packet noodles and snack noodles, with 50 production lines located in 11 facilities.
Uni-President principally targets the mid- to high-end market by pricing its products at 1.40 yuan or more per package.
Sales of instant noodles accounted for 40.2 per cent of the company's total revenue in the first six months of the year.
However, Uni-President's instant noodle segment recorded a net loss of 26.6 million yuan in 2004, a 52.4 million yuan loss last year and a 9.4 million yuan loss for the first six months of this year. The company cited decreased sales volumes and lower prices as a result of  intense competition, as well as fluctuating raw materials costs.
The principal raw materials for beverages - sugar, fruit juice concentrates, tea leaves, flavourings and water - accounted for 24.1 per cent of the company's cost of sales.
For instant noodles, raw materials - such as flour, palm oil, dehydrated vegetables and flavourings - made up 55.1 per cent of its cost of sales.
The company sources its sugar, flour and tea leaves  domestically. It buys palm oil mainly from Malaysia and juice concentrates from Brazil.
It often enters into three-month to one-year fixed-price contracts with suppliers  to reduce the impact of unstable raw materials prices.
What the analysts say
Ricky Tam, chairman, Hong Kong Institute of Investors
Pros: Domestic consumption stock is welcomed by investors
Cons: Too high a price-earnings ratio will negatively affect share performance
Patrick Yiu, associate director, CASH Asset Management
Pros: Food and beverage companies attract investors
Cons: A poor distribution network will slow down organic growth
Kenny Tang, associate director, Tung Tai Securities
Pros: The company's brand of instant noodles enjoys a good reputation on the mainland
Cons: The food and beverage business always must remain highly diversified to attain a good profit margin



Uni-President to use proceeds for growth