UPC Earnings: Operating Leverage and Cost Reductions Drove Earnings Growth; Retaining Fair Value

No-moat Uni-President China, or UPC, reported decent first-half earnings with revenue broadly consistent with our estimate, but margins exceeded expectations, thanks to an input-cost tailwind, operating leverage, and a reduction in promotional expenses. We raised our 2024 revenue and net income estimates by 1% and 11%, respectively, to factor in the better margins. However, we leave 2025–28 estimates largely unchanged. As a result, we retained our fair value estimate at HKD 6.80 per share, which implies 15 times 2024 price/earnings, 8 times EV/EBITDA and 6.5% dividend yield. We think current share prices are fairly valued.