Citi maintains a "Sell" rating on TINGYI with a target price of HKD 9.85

Citi published a research report stating that TINGYI (00322.HK) is expected to see a 14% year-on-year growth in core net profit in 2025, in line with the bank's and market expectations. However, last year's sales fell by 2% year-on-year, which was below management's guidance. The gross profit margin expanded by 1.7 percentage points due to favorable cyclical raw material costs, offsetting the impact of weak revenue and rising sales expenses. Management guided for revenue growth this year to be in the low to mid-single digits, with year-on-year pressure on gross profit margins, and a decline in operating expense ratios year-on-year. Profit growth in the first half of the year is "positive," but there is "no visibility" for profit in the second half, and there are no plans to raise product prices.

The report cited management stating that sales and profits recorded positive growth from January to February, but carbonated beverage sales were under pressure year-on-year due to Coca-Cola's recent aggressive promotions. Management expects revenue growth this year to be in the low to mid-single digits. The bank pointed out that TINGYI has lowered its full-year revenue guidance in the past three years due to weaker-than-expected revenue in the first half, reflecting the company's continued underestimation of industry competitive pressures. Since raw material costs have been locked in until May to June, management expects positive profit growth in the first half, but competition in the industry is fierce, and there are no plans to raise product prices even if raw material costs soar.

Citi believes that TINGYI's gross profit margin was at a ten-year high last year and will face year-on-year pressure this year. Management emphasized that there is no visibility for profits in the second half and will alleviate gross profit margin pressure by reducing the operating expense ratio (including the benefits of cutting 4,000 employees by 2025) and plans to maintain a 100% dividend payout ratio. The bank maintains a "Sell" rating with a target price of HKD 9.85