Nissin Foods Co Ltd is a Hong Kong-based company. The company produces and sells instant noodle, frozen food, retort foods, beverage products and snacks in Hong Kong and China.
It sells its products under the brand name NISSIN, DOLL, Cup Noodles, Doll Instant Noodle, and Fuku. The company’s operating segments include HK Operations and PRC Operations. It derives a majority of revenue from the PRC Operations segment.
In case you have missed it, the company is owned by the Ramen Instant Noodles-maker giant Nissin Foods of Japan.
They have a majority 72% stake and they’re the ones that led to the Hong Kong IPO in 2017.
#1 New Smart Production Line
The Company announced approval of a maximum funding support of HK$15 million from the Reindustrialisation Funding Scheme under the Innovation and Technology Commission of The Hong Kong Government.
The funds are allotted for the installation of a new smart production line in November 2021.
The implementation of a new line with robotics, sensors and smart systems in its Hong Kong facility will enable a real-time monitoring of the production and automation of most of the processes involved.
Given that most of their cup noodles (sold in Hong Kong) are made in Mainland China, this will help increase capacity and reduce the logistics costs and uncertainty in China (i.e. Covid lockdown – ehhmmm).
#2 PRC COVID Outbreak
At the start of the Covid-19 pandemic in 2020, “Eat-at-home” became the norm like “work-from-home”, stimulating instant noodle sales.
The fresh outbreak in PRC is doing this all over again, especially with much strict Zero-COVID restrictions.
Nomura says Nissin Foods is profiting from recent panic buying in Hong Kong, adding it sees more than 30% potential upside to its stock.
The new outbreak has caused panic buying of sorts for instant foods especially Nissin products.
Secondly, this is also the point to add that Nissin Foods is not just an Insta-noodle company. It has a varied distribution segment and Frozen foods division in Hong Kong.
It also sells other consumer goods in Mainland China like beverages and Granola snacks.
Thus, the current outbreak in China may spark better demand and earnings for Nissin Foods stock.
#3 Hail from Great Descendants
Nission Foods Hong Kong is the child of the original inventor of instant noodles on this earth.
The parent company, Nissin Foods Holdings is completely behind the growth of the Hong Kong based vertical.
It has stated that it will continue to promote its “Cup Noodles” brand to seize the big business opportunities in China.
#4 Smaller But Ahead of the Competition
Nissin Foods HK (HKEX: 1475), with a market value of about HK$6 billion, is much smaller than China’s two leading instant noodle makers Uni-President China (HKEX: 0220) and Tingyi Holding (HKEX: 0322).
But Nissin has taken on these goliaths with its superior brand value.
For example in Q3FY21. The demand for instant noodles and frozen food in Hong Kong was shrinking. This caused Nissin’s revenue from HK dipped 4.8% to HK$1.18 billion.
In sharp contrast, its revenue for China geography rose by 11.9% year-on-year to HK$1.95 billion, accounting for 62.3% of its total. This is attributed mainly to growing sales of higher value-added products, especially cup noodles.
On the other hand, in terms of valuation, Nissin is slightly ahead of the two leaders.
Nissin Food HK’s historical price-to-earnings ratio (P/E) is about 20x versus Tingyi’s 17x and Uni-President China’s 18x.
#5 Risk Factors
Nissin Foods faces higher competition risks as the instant food business has a pretty low entry barrier today.
The pressure of being spread between HK SAR and PRC in terms of production and supply chain also means low net margins (~8% for last 3 years). COVID and geopolitics have added to this vulnerability.
The nature of FMCG business is such that it requires sacrifice of margins for market capture. This can add to some of the pains of Nissin.
The global instant noodles market reached a value of US$ 47.08 Billion in 2020 and is expected to grow at a CAGR of 5% during 2021-2026.
A secure source of revenue and growth lies in the Asia-pacific where noodles are part of the staple diet but value-added products are yet to penetrate the market.
Nissin Foods is now trying to zoom in on the ‘value-addition’ path via higher R&D and brand building.
The parent company is also pushing for increased brand recognition. They have opened a ‘Noodle Museum’ in Hong Kong similar to ones in Japan.
The company also has had plans of a broad “premium” instant noodle segment and even food delivery. These have not seen much action from management side due to the pandemic. This can be a new calling with post-pandemic normalization.