March 20, 2018 / 5:41 AM / a year ago

UPDATE 1-China's Tingyi 2017 profit soars 57 pct, raw material costs pose challenge

(Adds details, management comment & context)

* Net profit 1.82 bln yuan vs 1.74 bln yuan analyst forecast

* 2017 gross margin falls 1.86 percentage points to 29.41 pct

* Says facing challenges from rising raw material prices

HONG KONG, March 20 (Reuters) - Tingyi (Cayman Islands) Holding Corp boasted a 57 percent jump in annual net profit on Tuesday, ending four years of slowing growth, but warned of challenges from rising raw material costs and shifting consumer preferences for healthier food.

The instant noodle maker and beverage producer, a Chinese partner of Starbucks and PepsiCo, said gross profit margin was under pressure amid price increase for key raw materials, such as sugar, PET resin and paper.

“The group faces numerous challenges such as demographic changes, constant increase of raw material prices and macro policy adjustments,” Chairman Wei Ing-Chou said in a stock exchange filing.

The company, however, benefited from revenue growth and savings from distribution costs as well as advertising and promotion expenses.

That helped the owner of the Master Kong brand to boost net profit for the January-December period to 1.82 billion yuan ($287.74 million) from a restated 1.16 billion yuan profit a year earlier.

It was just ahead of an average forecast for net profit of 1.74 billion yuan ($275.5 million), according to 23 analysts polled by Thomson Reuters.

Wei said that during the past year the company has strived to meet “demand for high-end and healthy products of the middle class,” with its premium soup series containing less additives to cater to health-conscious consumers.

Revenue rose 6.1 percent to 58.95 billion yuan during the year from 55.58 billion yuan a year ago. Gross profit margin dropped 1.86 percentage point from a year ago to 29.41 percent.

“Looking ahead in 2018, the volatile global economy, the urbanization and the rapid rise of middle class in China lead to diverse consumption demands,” Wei said.

The company said it would continue to reduce capital expenditure, to upgrade products to satisfy consumers’ needs, and to update and promote national food safety standards.

Tingyi has struggled to compete with niche Chinese snack food brands that have appealed to younger customers through interactive online and mobile campaigns that emphasise quality ingredients and production methods.

Shares of Tingyi recovered from an earlier loss and rose 1.8 percent in early afternoon trade after the results were announced. That compared with a 0.4 percent fall in the benchmark index. ($1 = 6.3148 Chinese yuan renminbi) (Reporting by Donny Kwok; Editing by Stephen Coates and Shri Navaratnam)

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