Maybank KimEng starts Nissin Foods at Buy on ‘premier-tier noodles’

Cup noodles at Singapore supermarketCup noodles at Singapore supermarket

Maybank KimEng started Nissin Foods at Buy with a HK$5.30 target price, saying the share offers both deep value and growth.

“We believe it is perfectly positioned to benefit from consumer premiumization in China and take market share in the fast-growing high-end noodle segment,” the brokerage said in a note dated Monday. “In China, where Japanese products are often associated with premium
quality, Nissin Foods is well positioned to capture China’s growing demand for high-end food products.”

It noted that the premium-tier noodle segment is only 9 percent of China’s overall sales and 4 percent of its volume, but the segment is expected to grow at 11.7 percent compound annual growth rate (CAGR) over 2016-2021 amid rising income.

’Attractive value’

“Given NF’s strong brands and rich product portfolio, as evident by its large 20 percent market share in this segment, we believe it is poised to ride this secular trend, especially with its new capacity additions post-IPO and its greater operational flexibility as a separately listed vehicle,” Maybank KimEng said. “We believe more localized management and an enlarged sales network will allow NF to speed up its market response and decision-making process, and accelerate its growth.”

It noted the stock trades at an “attractive value” at a 29 percent discount to peers on a 2018 forward price-to-earnings basis, with limited downside; the brokerage said the core business is undervalued, with net cash comprising around 60 percent of the market cap.

“We believe NF should be re-rated upon convincing the market of its improving sales growth outlook in China,” it said. “The stock is under the radar because of NF’s weak sales trends in the past few years, which was partly due to its capacity constraint as well as the challenging industry environment and macro factors.”

On Tuesday, the stock ended up 0.59 percent at HK$3.42.