Nissin Warns Of Steep Profit Slide But Sees Solid Core Business

Key Takeaways:

• Nissin Foods projected that profits for 2024 would fall between 38% and 41%
• But other figures show that underlying revenue from China grew nearly 10% in the first nine months of last year

  

By Lee Shih Ta

For many Chinese, memories of the great Lunar New Year getaway are suffused with the aroma of instant noodles being eaten on crowded trains as people headed back home for the festivities.

But this seasonal association has dimmed since China banned the sale of instant noodles on high-speed trains. Meanwhile, the Japanese company that gave the world instant noodles has been battling to stay on track in the congested Chinese market, where many brands are trying to tempt the local taste buds with their take on the familiar snack.

Hong Kong-listed Nissin Foods Company Ltd. (1475.HK), part of Japan’s Nissin group, issued an earnings alert after the Chinese New Year holiday, projecting a year-on-year fall of between 38% and 41% in its net profit for 2024. The company, which is famous for various brands such as Demae Ramen, Cup Noodles and UFO Fried Noodles, said it expected its annual profit to range between HK$195 million ($25 million) and HK$210 million when the finalized figures are released in March.

The company blamed the profit drop on the falling value of fixed assets, such as plant, machinery and distribution networks in Hong Kong and mainland China, as well as other one-off items on its books resulting in impairment charges of around HK$130 million to HK$140 million for the year.

Overall earnings for the year were forecast to be in the range of HK$605 million to HK$615 million, using the EBITDA measure, on a par with HK$608 million in 2023. The company’s share price rallied slightly after the statement came out on February 5 but was still languishing in loss territory for the year to date.

Mixed picture for China business

The company included further earnings figures for its Japanese parent company, Nissin Foods Holdings Co. Ltd. (2897.T), which indicated that underlying revenue from China was trending higher, stripping out factors such as currency fluctuations.

In the first three quarters of last year, revenue from the China division rose 9.6% to 53.53 billion yen (2.58 billion yuan), but operating profit fell by 47% to 2.84 billion yen in a drop attributed to foreign exchange factors. Excluding currency effects, operating profit grew 3.1% from the same period a year earlier while core operating profit slid 5.6% to 5.05 billion yen, the company said.

Nissin Foods appears to be keen to show that baseline income from Chinese food sales is holding up despite the steep slide in net profits, which was blamed on charges related to non-core assets within its complementary or distribution businesses.

As a huge consumer of instant noodles, China accounts for a major chunk of Nissin revenue. In the first half of 2024, the mainland business contributed 61.3% of the group’s total revenue. However, the numbers over recent years show that Nissin products have been losing momentum in the Chinese market as consumers have developed a taste for rival brands.

Revenue growth in China slowed to 14.3% in 2021 and decelerated further to 2.1% in 2022, before sales actually fell 5.3% in 2023. Last year, revenue returned to a growth track.

China’s weak economic recovery since the pandemic has affected consumption patterns for the Nissin range of food products. Sales of Cup Noodles have grown modestly in inland areas of mainland China, while sales of bagged noodles in Hong Kong have remained stable, but sales of frozen food products have fallen, the company said.

Instant noodle battle

In fact the three top noodle brands, Tingyi (0322.HK), Uni-President China (0220.HK) and Nissin Foods, have been locked in a fierce popularity contest in recent years, with upstarts also piling on the pressure. China’s Baixiang Foods and Korea’s Samyang Foods (145990.KS), with their novel and spicy flavors, have been gaining ground, promoted by live-streaming influencers.

Baixiang Foods raised its profile over the Chinese New Year with ads and slogans on the televised Spring Festival Gala. The Chinese food brand brought in revenues of 9.18 billion yuan in 2023, according to industry data, while media reports quoting company staff have reported sales surging to around 13 billion yuan in 2024, which would surpass the performance of Uni-President.

Demand for spicy Korean noodles is rising. Some media reports indicate that Samyang Foods is selling around 150 million servings of its Hot Chicken Ramen in China every year, while kimchi-flavored noodles from Nongshim (004370.KS) are also proving popular.

In the first five months of last year, South Korea exported $90.60 million worth of instant noodles to China, up nearly 28% from a year earlier, according to figures from the Korean food ministry. And South Korea’s total exports of instant jumped more than 30% in January through October last year, reaching a record high of $1.02 billion.

Nissin Foods is also speeding up an overseas expansion, with a focus on building a sales and promotional network in Australasia, as rival brands scramble to compete in global markets.

Last year, it acquired an Australian maker of frozen dumplings and set up a joint venture with Nissin Asia, another group company, for sales of instant noodles, snacks, cereals and other food products in Australia and New Zealand.

Nissin Foods has also obtained a controlling stake in a Vietnamese company within the wider Nissin group that makes instant noodles for export to higher cost markets such as Hong Kong, Macao and Taiwan.

Currently, the Hong Kong-listed company is trading at a price-to-earnings (P/E) ratio of 18.3 times, rising from 14 times last September. The multiple is slightly higher than Tingyi’s 18.1 times and Uni-President’s 17.7 times, reflecting investor optimism about its overseas strategy. Some analysts see further upside from the expansion plans.

Daiwa Securities said the impact from overseas growth had yet to be fully priced into the stock. In a recent research report, it reaffirmed an “overweight” rating for the company and revised its target price upwards from HK$4.90 to HK $5.88.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.