Key investment points

The performance was in line with expectations, maintaining a 50% dividend rate:

In 2020, the company's operating income was HK$3,519 billion, +14%; gross profit margin of 32.9%, basically the same as the same period last year; achieved net profit of 302 million yuan, +20.3%; net profit margin of +0.5% to 8.6%; the company announced a final dividend of 14.05 Hong Kong cents per share, with a payout rate of 50%.

20Q4 The growth rate of the Hong Kong region declined, and mainland China maintained double-digit growth:

Although there was still a recurrence of the 20Q4 epidemic in Hong Kong, the company did not have large-scale promotion activities in December due to the Spring Festival this year being later than last year. The 20Q4 Hong Kong business revenue was +2.2% year-on-year. The growth rate was slower than the previous period. Annual revenue was +9.1% year-on-year to HK$1.42 billion, accounting for 40.3% of the company's total revenue.

After the epidemic in mainland China was gradually brought under control in the second half of the year, due to high uncertainty in dealer expectations about future market demand, the original Q3 stocking peak was postponed to Q4. In 20Q4, mainland China's business revenue was significantly +21.5% year-on-year, and annual revenue was +17.5% year-on-year to HK$2.1 billion. It is the main business unit that accounts for the largest share of revenue and drives future growth in the company's performance.

Demand returns to normal in 2021, and the profit side may be under pressure:

Judging from the current prevention and control situation, it is unlikely that another large-scale outbreak of the epidemic will occur in China. Demand for instant noodles will return to normal in 2021, but due to the large base for the same period last year, it is expected that the growth rate of the industry will slow sharply. Meanwhile, prices of key raw materials such as palm oil, packaging materials, and flour continue to rise, which may put pressure on corporate profits. Nissin's current stocks of low-cost palm oil can be used until March. Later, it may control costs by changing packaging materials, product weight, procurement methods, etc. At the same time, it is expected that it will continue to ease the upward pressure on costs through increased scale effects and product structure optimization.

Maintaining the “buy” rating, the target price is HK$7.2:

We expect the company's EPS to be HK$0.31/0.34 in 2021-2022, respectively. Considering the continued rise in raw material costs or pressure on the company's profitability, we lowered the target price to HK$7.2, corresponding to 23.2 times PE in 2021. There is room for 20.6% increase over the current price, maintaining the “buy” rating.