DBS started Hong Kong-listed Nissin Foods at Buy, with an HK$4.39 price target.
“Nissin Foods is primed to take advantage of the growing premium noodle market in China,” DBS said in a note dated Wednesday, calling the company “small and nimble.”
“As a leading instant noodle market player in Hong Kong and China, we believe the company’s diversified brand and product portfolio, established sales network, strong R&D capabilities and stringent quality control would enable it to ride on the changing consumer tastes (premiumisation and healthier options), mitigating impact from possible cannibalisation of sales by its parent company,” DBS said.
“We believe the company’s strong pipeline of new flavour SKUs, and armed with the experience to promote more premium and healthier options (non-fry), will be able to reignite growth,” it said.
DBS forecast the company would achieve sales and earnings compound annual growth rates (CAGR) of 6 percent and 14 percent respectively over 2017-2019.
The stock’s valuation is attractive at 16 times 2018 price-to-earnings, compared with its direct peers at greater than 30 times 2018 price-to-earnings, DBS said, noting the stock was trading around 10 percent below its IPO price of HK$3.45 a share. The stock is trading at 41-50 percent discounts to direct peers Tingyi and UPC, the bank noted.
The stock ended Thursday up 0.31 percent at HK$3.26.