[ET Net News Agency, 4 December 2018] UBS Global Research lowered its target price for
Uni-President China (UPC)(00220) to HK$6.49 from HK$11.16 and downgraded its rating "sell"
from "buy".
The research house expects nearly stagnant margin and ROIC (return on invested capital)
expansion in 2019-20. It said the downgrade reflects a lack of positive momentum in noodle
premiumization and a weaker margin expansion outlook, and a potential upward inflection in
private label (PL) penetration in China, which could pressure branded noodle and beverage
companies.
UBS believes soft drinks (80% UPC's EBITDA) are the most prone to the PL threat among 10
consumer categories, which could constrain UPC's ROIC upside in the mid- to long term and
has not been priced in.
UPC lost market share in RTD tea in 3Q, while the category's growth also slowed
significantly in 2018 versus 2017. UBS cut its 2019/20 EPS forecasts by 21/27%, primarily
to reflect its lower revenue and margin outlook in noodles due to a moderating
premiumization trend and competitive pressure. (KL)