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会员
机构：中金公司
研究员：Wendan WANG/Yang SHEN/Yuxin WU
Kemen Noodle preannounced that attributable net profit was around Rmb78–117mn in 1H22, with recurring net profit at around Rmb70–105mn, in line with market expectations.
Trends to watch
Growth in sales volume and revenue of main product to accelerate in 2Q22 amid COVID-19 headwinds. The overall demand for fine dried noodles (the firm’s main product) was robust in 2Q22 due to the COVID-19 resurgence in some regions of China. Kemen was qualified to ensure food supplies amid COVID-19, thanks to its strong supply capability and superior product quality. Given that 2Q20 revenue was around Rmb1.05bn, we estimate that revenue exceeded Rmb1bn in 2Q22.
Gross margin of main product rose YoY in 1H22 thanks to robust demand, improved product mix, higher selling prices. Kemen improved its product mix, with the portion of high-GM products returning to a reasonable level. This, coupled with robust noodle demand, was the primary reason that gross margin of the firm’s main product rose. The firm raised the prices of its flour and noodle products in December 2021, thereby mitigating the pressure from rising wheat costs. Gross margin of flour products also returned to a reasonable level (2–5%) in 1Q22. The company’s overall costs declined thanks to implementation of its business strategy. With increasing sales volume of instant food, t external flour sales gradually trended downwards in 1H22.
Noodle-product demand to remain stable as COVID-19 lingers; cost pressure to ease HoH in 1H22 on MoM decline in wheat prices in May and June. Demand for noodles and instant food has grown steadily amid COVID-19. We expect the firm to maintain its portion of high-GM products in its product mix, to ensure the high gross margin of its fine dried noodles. Kemen purchases wheat mainly from domestic suppliers, as futures and spot prices of domestic wheat are less volatile than f imported wheat prices. Cngrain.com reports that the price of wheat harvested in May and June trended downward, which we think will ease cost pressure in 2H22.
Financials and valuation
We maintain our earnings forecasts, estimating that the firm’s 2022 and 2023 revenue and will reach Rmb4.6bn and Rmb4.87bn, while attributable net profit will rise 185.0% to Rmb192mn and 15.4% YoY to Rmb221mn. The stock is trading at 20.5x 2022e and 17.8x 2023e P/E. We maintain OUTPERFORM and our TP of Rmb15.00 (26.6x 2022e and 23.0x 2023e P/E), offering 28.6% upside.
Risks
Intensifying competition; volatile raw material prices and production costs; food safety issues.