Tingyi Earnings: Gross Margin Expansion Drives Resilient Profit Growth; Retain Fair Value Estimate

While narrow-moat Tingyi’s first-half 2024 revenue trailed our estimate, net profit exceeded our forecast thanks to better-than-expected gross margin and lower-than-expected operating expenses. An input cost tailwind and positive mix shift were major drivers of gross margin expansion across food and beverage segments. We lifted our 2024-25 net income estimates by 6%-7% to account for better gross margin but left our longer-term forecasts largely unchanged. We retain our fair value estimate at HKD 12.70 per share, which implies 19 times 2024 price/earnings, 8 times enterprise value/EBITDA, and a 5.3% dividend yield. Although management lowered its 2024 revenue growth guidance to low single digits, this is consistent with our estimate. Positively, Tingyi reiterated its 2024 dividend payout ratio target of 100%, which implies a 7% dividend yield based on the current share price. We continue to see the shares as undervalued.