Uni-President China Earnings: Strong Sales and Gross Margin Expansion Drove Solid Profit Growth

No-moat Uni-President China, or UPC, reported solid first-quarter results, with net profit excluding one-off non-operating gains growing 104% year on year, against a low base as pre-Chinese New Year stocking benefited fourth-quarter 2022 instead of first-quarter 2023. In addition, we saw strong double-digit top-line growth and margin expansion, driven by lower input costs, improved utilization, and reduced channel expenses. What stood out to us were the recent new-product launches, including sugar-free tea, milk tea, and juice, which we think could help UPC stay competitive in the long term. We raised our 2024 revenue and net profit projections by 1% and 12%, respectively, but left 2025-28 earnings forecasts largely unchanged. We retain our fair value estimate at HKD 6.60 per share, which implies 16 times 2024 price/earnings, 8 times enterprise value/EBITDA and a 6.7% dividend yield. The stock price had a decent runup following the 2023 results announcement, and we view the shares as fairly valued currently.