Tingyi (Cayman Islands) Holding Corp, China's biggest maker of packaged food, posted its slowest first-quarter profit growth in three years as raw material costs rose and competition intensified.
Net income in the three months ended in March rose to $102.2 million, or 1.82 cents a share, from $93 million, or 1.66 cents, a year earlier, the Tianjin-based company said in a statement to Hong Kong's stock exchange today. Sales increased 23.3 percent to $1.45 billion.
Tingyi is spending about $500 million this year upgrading factories with better technology to lower costs and increase output to meet competition in China, where companies including Coca-Cola Co are expanding.
"We believe Tingyi is facing upside risks to major raw material costs," Selina Sia and Jessica Hong, analysts who recommend reducing Tingyi holdings at Mirae Asset Securities Ltd in Hong Kong, wrote in a note to clients today. There's "limited room to pass on raw material price hikes to its customers in financial year 2010."
Tingyi rose 2.6 percent to HK$17.58 in Hong Kong at the 12.30 pm break, before the earnings announcement. The stock has fallen 8.4 percent this year, compared with a 10.2 percent decline of the benchmark Hang Seng Index.
"It is apparent that competition is getting more and more intense," the company said in a statement today. "Facing the increases in prices of raw materials, we shall maintain proper control over costs, refine the production process and optimize the product mix to ease the pressure from decreasing gross profits."
Noodle sales rise
Instant noodle sales rose 21.9 percent to $716.5 million in the first quarter from a year earlier and beverage sales increased 29.5 percent to $680.3 million, Tingyi said today.
Tingyi's market share for instant noodles in terms of sales volume rose to 42.6 percent in China, the company said, citing an ACNielsen survey in March. It ranked top for bottled water with a 19.8 percent market share, according to the survey.
The company said in March that 60 percent of its capital spending will go toward its beverage business as a response to investments from overseas companies.
Coca-Cola, the world's biggest soft drinks maker, said in 2009 it planned to invest $2 billion in China during three years to win more customers in the world's most populous country.
Demand for such products in the Asian nation is forecast to grow 9.8 percent to 60.4 billion liters this year according to market research company Euromonitor International.
Tingyi sells high-end packet noodles under its "Master Kong" label, and also targets lower-income consumers with its "Fumanduo" brand.
