On Wednesday, Goldman Sachs adjusted its stance on shares of Uni-President China Holdings Ltd. (220:HK) (OTC: UNPSF), downgrading the stock from Buy to Neutral and reducing the price target to HK$7.50 from the previous HK$8.04.
This decision was influenced by the company's third-quarter profit update released on November 12, which showed a net profit increase of 13% year-over-year to Rmb669 million. This figure fell short of Goldman Sachs' expectations, which anticipated a growth of over 30%.
The modest profit increase was supported by a notable uptick in beverage sales and a more than 2 percentage point expansion in gross profit margin (GPM), driven primarily by the beverage segment.
However, the food segment's GPM remained relatively flat year-over-year, despite facing cost pressures. Moreover, the GPM expansion was partially counterbalanced by an uptick in selling expenses, which were attributed to investments in branding and retail to stimulate top-line growth.
Following the third-quarter results, Goldman Sachs revised its net profit estimates for Uni-President China downwards by 8-10% for the years 2024E-2026E. The updated price target of HK$7.50 is based on the average earnings per share (EPS) for 2024/25. The downgrade to Neutral reflects a reassessment of the risk/reward balance for the company's stock, especially after its recent outperformance in the market.
The report also highlighted potential concerns for the future, including the possibility of increased cost pressures due to commodity headwinds and low visibility for sales growth in the food segment for 2025.
Despite these challenges, Uni-President China's stock is trading at 15X/14X 2024/25 P/E on updated earnings. The expected dividend yields for 2024/25 are 6.9% and 7.8% respectively, which Goldman Sachs believes could still support the company's valuation level.
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