Uni-President Enterprise China (00220. HK): Revenue target of 50 billion within five years

Uni-President China announced that its net profit in 2022 exceeded Huatai's expectation by 3%, mainly due to revenue exceeding expectations. In the analyst meeting, the management emphasized that the revenue target for the next five years will reach 50 billion, which means that the compound annual growth rate of at least double digits is significantly higher than Bloomberg's mid-single-digit forecast. Its confidence comes from the company's exploration of new scenarios (traditional ready-to-drink tea and fruit juices in catering and household scenarios), unique flavors (such as Jihuang instant noodles and kumquat lemon), and emerging categories (sugar-free tea) in the past one or two years. Positive feedback. Although there are still many uncertainties in the short-term fluctuations in raw material prices, the accelerated growth in revenue will effectively drive operating leverage to improve more than we previously expected. We expect 2023E-25E EPS to be RMB 0.47/0.51/0.59 and raise the target price by 22% to HK$8.8. Our target price is a rolling 12-month core EPS of 0.43 yuan (excluding one-time land disposal income) and 18.2 times dynamic PE (historical average PE+1SD since 2021). Maintain BUY.

Uni-President China's 2H22 revenue increased by 17.1% YoY. Among them, the food/beverage segment grew by 17.2/18.6% year-on-year, significantly faster than the 14.0/4.9% in 1H22, due to the increased demand for stocking before the Spring Festival and the strong demand for traditional ready-to-drink tea and juice.

From the perspective of single product revenue in 2022, Soup Daren will see double-digit year-on-year growth, and Eggplant will grow in multiples; traditional ready-to-drink teas such as Uni-President Iced Black Tea will see double-digit growth; Maintain high single/multiple/double digits/considerable compound growth for three years. The strong growth of these single products also prompted us to raise the company's revenue compound growth rate from mid-single digits to high single digits in the next three years.

In 2022, GPM will shrink by 3.6pp to 29.0%, of which food/beverage GPM will shrink by 2.3/4.7pp to 23.0%/33.9%, mainly due to rising raw material prices. In 2M23, domestic PET polyester chips/flour/palm oil/sugar prices changed by -4/+9/-29/+2% year-on-year, respectively, and the overall price continued to slow down compared to +2/+12/-18/0% in 4Q22. The price trend of raw materials in 2023 still faces great uncertainty. Suppose it is assumed that raw materials will maintain the current price level for the rest of 2023 from the perspective of the average price of 2023. In that case, domestic PET polyester chips/palm oil will fall 7/24% year-on-year, the flour will remain flat year-on-year, and sugar will increase slightly by 2% year-on-year. We expect GPM to improve to 31.3/32.5% in 23/24.

We raise our net profit forecast for 2023/24 by 21.8%/15.5% to RMB 2.02 billion/2.20 billion, mainly due to faster-than-expected revenue growth and one-off land disposal income in 23 years. We introduce a net profit forecast of 2.56 billion yuan in 2025. Thanks to its strong cash position (2022: RMB 2.8 billion in net cash) and stable capex (2022: RMB 550 million), we expect UPC to maintain a 100% dividend payout ratio in 2023 (2022: 120%).