Tingyi Considers Food Deals With $1.6 Billion War Chest

Tingyi Considers Food Acquisitions With $1.6 Billion War Chest

Tingyi (Cayman Islands) Holding Corp. (322), PepsiCo Inc.’s Chinese partner, is considering buying instant food businesses to boost growth after annual sales expanded at the slowest pace in eight years. The maker of Master Kong brand ready-to-drink teas and snacks is seeking acquisitions, and will likely form a new strategic alliance next year, Chief Financial Officer Frank Lin said in an interview in Taipei on Nov. 29, declining to provide details. It’s considering both domestic and overseas brands for deals and cooperations, he said.Tingyi has formed ventures with PepsiCo, Asahi Group Holdings Ltd. (2502) and others in the past three years to win customers as rising incomes in China boost consumption. The Tianjin-based company can leverage its $1.6 billion of cash for acquisitions to stave off competition from global food companies such as Nestle SA.

“For the instant food business, we choose M&A instead of organic growth because it’s faster to expand our presence in the China market,” Lin said. No final decision has been made on the acquisition and alliance plans, and Tingyi will focus on deals in China over the next five years, he said.

Tingyi’s Hong Kong-listed company has gained 7.4 percent this year, compared with a 5.5 percent increase in the benchmark Hang Seng Index.

The company gets more than half its revenue from beverages, 43 percent from instant noodles and 2.5 percent from instant foods, which include sandwich snacks, muffins and egg rolls. It’s also importing infant formula from Asahi Group’s Wakodo baby nutrition unit to sell in China this year.

Growth Opportunity

Tingyi “has struggled to consistently gain traction in their instant foods segment” because of the fragmented market and fierce competition, said Jeremy Yeo, Hong Kong-based analyst at Mizuho Securities Asia Ltd. Tie-ups and acquisitions would add to the company’s competitive edge, he said.

Snack food provides growth opportunity as the instant noodles market has reached a mature stage, he said.

The market share of Tingyi’s Master Kong-brand instant noodles this year is estimated at about 37 percent, little changed from 2012, the largest in China, according to industry researcher Euromonitor International.

“Tingyi will almost certainly be able to make more money by augmenting the product mix and by raising prices, but they will have to do so carefully so as not to destroy demand,” Yeo said. The company could pursue deals in segments such as health foods, cookies, nuts, chocolate-based snacks and dairy products.

Dividend Payment

The foodmaker plans to pay out 50 percent of its earnings as a dividend and will save the rest for possible acquisitions, Lin said. It held $1.6 billion in cash and short-term investments at the end of September, according to data compiled by Bloomberg.

Sales this year will probably increase 17 percent to $10.7 billion, according to the average of 32 analysts’ estimates compiled by Bloomberg. Revenue rose 17 percent last year, the slowest annual pace since 2004, according to data compiled by Bloomberg.

Tingyi in August said the introduction of flavors such as Water Chestnut and Honey Dates has helped boost its market share in the fruit juices category.

Taiwan’s Ting Hsin International Group, which partly owns Tingyi, was the second-largest beverage company in China’s 67.5 billion liter soft-drink market last year with a 12.8 percent share after Coca-Cola’s 15.7 percent, according to Euromonitor. Purchase, New York-based PepsiCo (PEP) had a 4.5 percent share.

Tingyi’s beverage sales next year will probably increase at twice the more than 7 percent expansion in China’s economy analysts forecast for 2014, and instant noodle sales would rise one-and-a-half times faster, Lin said.

‘Growth Driver’

“Our drinks and instant noodles businesses will still be the growth drivers for the company next year,” Lin said. “Any impact to consumer demand in 2014 will be very limited.”

The company has been expanding its co-operation with overseas partners after signing a bottling franchisee agreement in 2011 with PepsiCo which allows the Chinese company to make and sell its non-alcoholic drinks in the country. Tingyi, Japanese snackmaker Calbee and Tokyo-based Itochu agreed in April 2012 to form a snack manufacturing venture in China.

Tingyi is considering separating its food and beverage businesses and seeks listing to “improve operations and maximize shareholders’ interest,” the executive said, adding the company doesn’t have a timetable.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net; Cindy Wang in Taipei at hwang61@bloomberg.net; Billy Chan in Hong Kong at bchan101@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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