According to the research report released by Haitong Int'l, U-Presid China (00220) is rated 'outperform the market', and its revenue is expected to be 30.63 / 32.45 / 34.19 billion yuan for 2024-2026, while the expected net income attributable to shareholders for 2023-2025 is 1.78 / 1.96 / 2.17 billion yuan, with corresponding EPS of 0.41 / 0.45 / 0.50 yuan, and target price of HKD 8.9.

Haitong International's main viewpoints are as follows:

The 1H24 performance is slightly better than the market expectation.

The company achieved an income of 15.45 billion yuan in 1H24, a YoY increase of 6.0%; net income attributable to shareholders was 0.966 billion yuan, a YoY increase of 10.2%; and non-recurring net profit increased by 57% YoY (excluding a one-time after-tax gain of 0.26 billion yuan from the transfer of the Hefei factory in 23H1). Among them, the non-recurring net profit in 24Q2 was 0.51 billion yuan, an increase of 31% YoY. The 1H24 performance was slightly better than the market expectation.

Beverages had good performance, while food maintained stable growth.

Beverage revenue increased by 8.3% YoY in 1H24, with Q1 achieving double-digit growth and Q2 slowing down. By category, the revenue of tea drinks, juices, and milk teas in 1H24 increased by 11.8%, 8.2%, and 3.3% YoY respectively. Tea drinks had an outstanding performance due to the prosperous outdoor consumption environment. Sweet tea continued to grow rapidly, while the new sugar-free tea, Spring Whispering Green Tea, had excellent sales figures. Juices have grown significantly, driven by the double-digit growth of Haizhiyan's revenue. The company's food revenue in 1H24 increased by 0.9% YoY, with instant noodles increasing by 1.9%, outperforming the industry. Qiehuang and Laotan Sour Cabbage noodles achieved double-digit growth, while Hongshao Beef noodles remained stable and Tongdaren soup declined slightly.

The gross margin performed slightly better than expected, while the logic of net margin improvement continued to be realized.

The gross margin of the company in 1H24 increased by 2.7pct YoY to 33.8%, mainly due to cost reduction, capacity utilization improvement, and reduced promotions. Competitors increased prices for multiple categories, which has continuously contributed to UniPresident gaining market share, boosting sales, improving capacity utilization, and reducing promotions. The bank predicts that gross margin will continue to improve YoY in the second half of the year. By category, the gross margins of instant noodles and beverages each increased by 2.5pct and 2.7pct YoY. In terms of expenses, the company's sales expense ratio remained basically flat YoY in 1H24, with expenses in line with expectations. The administrative expense ratio was slightly optimized due to the transformation of some direct-operated modes to distribution and slight optimization of personnel expenses.

The dividend yield is attractive, and high dividends still provide support for the stock price.

Based on the relatively weak macro consumer environment, the bank recommends high-dividend payout companies with certainty. The company has consistently delivered 100% dividend payout over the years, with cash dividend payout ratio of 100% / 120% / 120% / 110% from 2020-2023. The bank predicts that the net income of the company will be 1.78 billion yuan in 2024 (a year-on-year growth of 6.6%), and assuming that the company maintains its historical dividend payout ratio of 100%, the corresponding dividend yield calculated based on the current market cap will reach 7.2%, indicating an impressive dividend value.

Risk warning: intensified industry competition, fluctuating prices of raw materials, food safety risks.