Uni-President China’s 2023 Profit Poised To Rebound Notably

No-moat Uni-President China 00220 reported 2022 results that exceeded Refinitiv consensus estimates on revenue and met expectations on net profit. Channel expansion efforts boosted top-line growth in the fourth quarter, which also helped deliver a roughly stable gross profit in dollar terms versus last year despite rising input costs.

We see channel penetration as the right strategy to drive profit growth in the medium term. Management reiterated the target to reach CNY 50 billion in sales within five years. We remain cautious as to whether this target (implied low-teens five-year CAGR) can be achieved and expect mid-single-digit CAGR instead. But we see high certainty in earnings rebound in 2023, thanks to the reopening of the economy and lower costs.

With the upward revision in the top line and earnings, we raised our fair value estimate to HKD 7.60 per share (from HKD 6.90 per share), which implies 16 times 2023 P/E, broadly in line with its three-year average of 17 times. Despite a decline in dividend payout, the stock reacted positively in early trading on March 9. We think the stock may enjoy near-term momentum, given management’s more positive 2023 profit outlook.