Core views:
Growth returned in 2017, and there is still room for the instant noodle industry for a long time. The instant noodle industry continued to decline in 2014-2016, mainly due to the rise of takeout and a slowdown in the growth of major consumer groups. The industry has returned to growth since 2017 as takeout subsidies subside and instant noodle upgrades and innovations continue to expand the consumer base. Comparatively looking at the Japanese instant noodle industry, which reached maturity in 1975, volume and price have maintained an upward trend over the past 40 years. We believe that the domestic instant noodle industry will continue to grow at a slow rate for a long time in the future.
Soft drink categories are diversifying, and healthy drinks are growing. Revenue growth in the soft drink industry slowed in 2014-2016, mainly due to macroeconomic slowdown, pressure on demand compounded by changes in consumer preferences. With the rise of sugar-free drinks, some segments are growing rapidly. Comparatively, the Japanese soft drink industry has continued to grow over the past 60 years. Diversification of categories and unsweetened products are the main factors supporting its long-term growth. Currently, the domestic soft drink industry is also showing similar trends. We expect the domestic soft drink industry to maintain growth for a long time.
The leading consumer goods company with high dividends is expected to grow steadily in the long term. In 2021, the company's market share of instant noodles, tea drinks and carbonated drinks was 48.0%, 43.4%, and 33.1%, respectively, ranking first in the market, and its leading position is stable. Demand for consumer goods is changing slowly, and with strong channel capabilities, we believe that the company can follow the industry for a long time to achieve steady growth. The company's net operating cash flow/net profit has remained at around 2 for a long time, and the payout capacity is strong. At the same time, the peak of capital expenditure has passed. Since 2006, the cumulative cash dividend has been 40.4 billion yuan, with a cumulative net profit of 50.7 billion yuan during the period, with a cumulative dividend rate of 80%. Taking into account dividend capacity and past records, we believe that the company's high dividend is expected to be maintained.
Profit forecasting and investment advice. Revenue for 23-25 is estimated to be 813.8/855.5/903.1 billion yuan, up 3.4%/5.1%/5.6% year on year; net profit to mother of 32.3/36.4/4.07 billion yuan, up 22.6%/12.9%/11.8% year on year, EPS is 0.57/0.65/0.72 yuan/share, respectively, corresponding PE is 13/11/10 times. Compared with comparable companies, Master Kong has a significant advantage and higher dividends. It gives a PE valuation of 13 times over 24 years, a reasonable value of HK$9.25 per share, and a purchase rating.
Risk warning. The macroeconomy fell short of expectations. The dividends fell short of expectations. Food safety issues.