China drinks and instant noodle maker Tingyi returned to profit growth in the third quarter, as demand for consumer staples climbed amid signs of a stabilising domestic economy and as raw material costs fell.
The 19.4 percent rise for Tingyi (Cayman Islands) Holding Corp's third-quarter net profit was a turnaround from a profit decline in the second quarter, and was also due to greater production efficiency at bottling plants that it operates under a broad partnership with PepsiCo Inc.
Tingyi, which commands just over half of China's $8.8 billion instant noodle market, has also been able to weather the country's economic slowdown better than rivals, thanks to its leading positions in both drinks and noodles, taking advantage of greater economies of scale.
The company, which sells noodles under the Master Kong brand, said on Monday that net profit for the three months ended in September totalled $155.9 million, although that fell a little short of an average forecast of $162 million from six analysts polled by Reuters.
Tingyi's Chairman, Wei Ing-Chou, said in a statement that he expects China's economy to continue to improve after bottoming out in the third.
In view of looser fiscal and monetary policies, we expect the economic situation to improve in the fourth quarter, but to a limited extent, he said, adding the food and beverage industry was still grappling with intense competition.
Recent China data for October has provided further signs that a long slide in economic growth may be over.
DRINK REVENUE JUMPS
The third-quarter profit rise follows an 18.6 percent drop in the second quarter, which had been its first annual profit decline in three quarters.
Shares of Tingyi are up just 0.4 percent for the year to date, lagging a 15 percent gain for the benchmark Hang Seng Index as it lacks the growth catalysts that have helped other industries find more favour with investors.
On Monday, it was trading up 1.7 percent prior to the results compared to an 0.7 percent rise for the benchmark.
Third-quarter revenue for Tingyi increased 33.6 percent to $2.95 billion, with sales of drinks, which account for about 62 percent of revenue, soaring 57 percent to $1.82 billion. Sales of instant noodles which account for some 35 percent of revenue, rose 7.2 percent to $1.04 billion.
Gross profit margin for the third quarter rose 4.18 percentage point to 31.32 percent, helped by