Tingyi faced sluggish beverage sales in 2Q14

But there are promising outlooks ahead.

In 1H14, Tingyi’s NPAT was up 18% YoY on 2% sales growth, but nonetheless, EBITDA/EBIT up 21%/25% on strong beverage margin.

According to a research note from Maybank Kim Eng, meanwhile, weak beverage sales YoY in 2Q14 was a major negative while positives include the following: Distribution costs as % of sales down 80bps YoY; and confirmed to lead healthy industry competition and profit.

Further, the report noted promising outlook for Tingyi through the following: OPEX improvement is sustainable on optimized supply chain and precise marketing efforts; product upgrades in recent years bode well for better top-line growth sustainability and more prosperous ASP outlook ahead.

Here’s more from Maybank Kim Eng:

Beverage sales growth momentum remained soft in July.

However, Tingyi confirmed its channel inventory is healthy and it is in a good position to benefit from any demand rebound.

Furthermore, new beverage products from Pepsi should be introduced once the full integration of Pepsi-Tingyi is completed in 4Q14F or afterwards.

We lower our EPS for FY14-16F by 15-22% on:

i) 9-15% cut in sales assumptions;

ii) % increase in minority interest. Our new TP is based on 28X PER (old: 34X), as roll over our valuation basis from FY14F to FY15F, anchored at 28% 3-year core NPAT CAGR (old: 34%).