Earnings decrease said to be caused by reduced noodle, beverage revenue, slowing market
Chinese food and beverage producer Tingyi Holding Corp reported on Tuesday a 16.63 percent profit decline for the first quarter of 2015 due to weak demand, while analysts said the company should expand their product portfolio to tackle fierce competition.
The Hong Kong-listed company, which owns leading instant noodle brand Master Kong, had total revenue of $2.3 billion in the first three months of this year with a 16.56 percent year-on-year decrease.
Its profit dropped 16.63 percent to $107 million compared with $128 million in the same period in 2014, according to its filing on the Hong Kong stock exchange.
All of its major product categories saw declining revenue due to weak demand in the market, said the filing.
However, Yan Qiang, general manager of Beijing-based consulting firm China-U.S.A. Benchmark Group, said that the weak demand is only a minor factor.
"The sluggish economy may force people to cut their expenses on durable consumer goods such as homes and cars but it has little impact on low-price daily foods," Yan told the Global Times on Tuesday.
Tingyi's revenue from instant noodles dropped 13.02 percent year-on-year to $1 billion, but it accounted for a 55.9 percent share of the local market, retaining its No.1 position.
In 2014, Tingyi earned a 46.8 percent instant noodle market share while its major rival Uni-President China Holdings Ltd had 17.9 percent, newspaper Beijing Youth Daily reported in March, citing data from market researcher AC Nielsen.
Meanwhile, revenue in the instant noodle market in China dropped 2.7 percent year-on-year in 2014, the report said.
China's instant noodle market features fierce competition with the top 10 producers capturing more than 90 percent of the market, according to the report.
The import volume of noodle products has increased in the Chinese mainland market in recent years, leading to more pressure for domestic brands, Ma Wenfeng, an analyst with Beijing Orient Agribusiness Consultant Co, told the Global Times on Tuesday.
Moreover, some new brands with lower prices, such as Baixiang, an instant noodle brand based in Zhengzhou, capital of Central China's Henan Province, have intensified the competition, Ma noted.
There are also high-priced competitors, such as Nongshim, a South Korean instant noodle brand, that saw market share growth although its products are more expensive than Master Kong, Yan said.
The Chinese food market is upgrading, therefore, companies also have to improve their products and enrich their portfolio, Yan noted.
Tingyi plans to produce high-end instant noodles and has spent 300 million yuan ($48.4 million) in setting up a manufacturing factory in East China's Shandong Province, the Beijing News newspaper reported on Friday.
Tingyi's January-March beverage sales dropped 18.92 percent year-on-year to $1.26 billion, accounting for 54.29 percent of the company's total revenue in the period, according to its filing.
The company ranked at the top of the Chinese bottled tea market with a 53.9 percent market share, the filing said, citing data from AC Nielsen.
Data from AC Nielsen also showed that the traditional beverage market is shrinking while some new types of beverages including energy drinks and plant-based protein drinks are winning more consumers in China, Beijing Youth Daily reported.
Bottled tea sales in China declined 3.6 percent in 2014 and fruit juice also saw a 1.6 percent sales decrease, according to the report.
Some new bottled drinks have emerged in recent years that are steadily growing in popularity, and there is no doubt they are grabbing market share from traditional drinks including sparkling beverages and juices, Yan said.
"But Tingyi, though it is a beverage giant, has no new hit drinks," Yan said, "It's not surprising that its performances weakened in the beverage sector."
Tingyi's latest move in the beverage sector is producing and selling Starbucks' ready-to-drink products in the Chinese mainland market, according to a cooperation deal jointly announced by the two companies in March.
Faced with weak beverage market demand, the cooperation can help Tingyi prepare to tap into the bottled coffee market, Ma said.