The Zhitong Finance App learned that Morgan Stanley released a research report stating that it downgraded the unified enterprise China (00220) rating from “synchronizing with the market” to “reducing holdings”, and that the target price was lowered from HK$6.6 to HK$5.8. The bank raised the target price of Master Kong Holdings (00322) from HK$11 to HK$11.5, which is equivalent to predicting a price-earnings ratio of 16 times this year, and renewed the “plus” rating.

According to the report, the competitive trend of domestic instant noodle products after rising prices and the price competition for beverage products may become the focus from the second half of the year to next year. The bank expects that Master Kong's price increase will push it to record relatively good profit margins next year. The bank believes that Master Kong's current valuation is still attractive compared to his peers, while Unification Enterprise China's valuation seems to be relatively high.

Damo expects that the market's current concerns about price competition for bottled water and unsweetened tea will have limited impact on Master Kong and Unification's sales because the above products do not contribute much to sales. Despite increased competition, the bank expects that the two companies will still be able to record growth in the rapidly growing sugar-free tea market, and the same level of price competition will not extend to other beverage categories. The bank expects Master Kong's and Unified beverage revenue to increase by 5% and 6%, respectively, by next year.

The bank believes that the gross margin of the two companies will expand this year and next two years. Among them, sales leverage and a better product portfolio are the main drivers of gross margin expansion, while the cost efficiency of raw materials will decrease. The bank predicts that Master Kong and Unification will increase their profits by 11% and 7%, respectively, next year.