Sunday, July 7, 2019
Martin Hennecke

If you can't afford Vitasoy, gobble down instant noodles
<p>Vitasoy International (0345), whose shares have been on a roll in recent years, yesterday reported that its net profit for the year ended March 31, 2019 increased by 18.8 percent to HK$695 million.</p><p>However, its shares fell sharply by nearly 6 percent after the results were announced before closing 4.92 percent lower at HK$42.55.</p><p>Meanwhile, another mainland-focused food stock Nissin Foods (1475), which has shot up 7 percent over the last five days, once touched HK$5.28 yesterday, close to a record high.</p><p>There&#39;s no doubt that Vitasoy is a quality stock.</p><p>With its robust growth in the mainland market, its share has repeatedly hit new highs.</p><p>But the performance does not mean that the stock will continue to rise in the short term, because its current price-to-earnings ratio is close to 80.</p><p>This valuation is extremely expensive compared with the average PE ratio of food stocks.</p><p>Moreover, there are quite a few institutional investors in Vitasoy, and they have been seen recently reducing their stakes when the share price was at a relatively high level.</p><p>Vitasoy&#39;s beverages are highly popular and well known in Hong Kong, and its soymilk has been a smash hit in the mainland market in recent years.</p><p>Interestingly, Vitasoy turned its back on the family business model in favor of putting professionals in place to run and strategically develop its operations.</p><p>Vitasoy&#39;s net profit for its Hong Kong business during the financial period fell 3.67 percent to HK$339 million but net profit for its mainland business shot up by nearly 33 percent to HK$720 million, helping it deliver on its duty to investors.</p><p>Food stocks are less sensitive to economic slowdowns and this is mainly why basic consumer stocks such as Vitasoy and Nissin Foods are faring well rather than poorly in the face of the downturn in the mainland.</p><p>For, even if the man on the street finds fish and meat out of their reach, they will still be able to afford soymilk and instant noodles. Thus, the economic downturn may be prove beneficial to these safe-haven stocks that are driven by domestic demand.</p><p>Nissin Foods, which is best know for its Demae Iccho and Cup Noodles, has been listed for less than two years, and its earnings growth has been stable.</p><p>It issued its shares at HK$3.54 and its current PE ratio is about 27, which is almost the same as instant noodles industry leader Tingyi (0322), which has a P/E ratio of 26.</p><p>However, Nissin Foods scores over its bigger rival because it has a smaller market cap and its price has room for growth.</p><p>The Hong Kong-based manufacturer&#39;s net profit rose 25 percent from a year ago to HK$91.67 million in the first quarter of this year. In addition to instant noodles, the group has diversified its portfolio and last year added a cereal production line to cater to the markets in Hong Kong, Macao, Taiwan and the mainland.</p><p>So, if investors are daunted by the high price of Vitasoy, an investment in the noodle-maker wouldn&#39;t be a bad bet for those with an appetite for food stocks.</p><p>Ivan Tong is Editor in Chief of The Standard</p>

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