UPEC Earnings: Food and Beverage Business Drove Profit Growth; Retaining Fair Value Estimate

No-moat Uni-President Enterprises' second-quarter results exceeded our profit estimates primarily due to strength in 73%-owned subsidiary, Uni-President China. Momentum in the food and beverage, or F&B, business in mainland China also drove better margins for the upstream packing segment. However, retail and convenience store segments margin fell year on year due to restructuring costs of Carrefour Taiwan and rising labor costs in 7-Eleven. We keep our 2024 revenue forecast unchanged but raised operating margin estimate for the year to 5.1% from 4.9%, due to a better profit outlook for the mainland China F&B business. The minor change in 2024 earnings leaves an immaterial impact to our fair value estimate, which remains at TWD 68 per share and implies 17 times 2024 price/earnings, 5 times EV/EBITDA and 4.4% dividend yield. We see shares as overvalued.