UPEC Earnings: Operating Profit Disappoints but Improvement Is Likely; Shares Not Cheap

No-moat Uni-President Enterprises’, or UPEC's, first-quarter performance was mixed, with revenue seeing strength but operating margin disappointing, as weakness in the mainland China packaged food business more than offset growth in 7-Eleven across the Philippines and Taiwan. So, while the top line is tracking higher, the bottom line is not presently benefiting. But we expect sequentially improving operating profit for Uni-President China, with selling, general and administrative expenses to be concentrated in the earlier part of the year. As a result, we retain our fair value estimate at TWD 68 per share, which implies 17 times 2023 P/E and is broadly in line with the three-year average of 18 times. We think UPEC’s share price is moderately overvalued at the moment.