Tue, Mar 22, 2011 - Page 12 News List

Tingyi’s noodle prices going up

HIGHER COSTS:The rising cost of ingredients, such as palm oil and flour, have forced the company to increase costs, which are expected to chip away at its gross margins

By Jason Tan  /  Staff Reporter

Tingyi (Cayman Islands) Holding Corp (康師傅控股), China’s biggest maker of packaged food, yesterday said it is raising prices of select instant noodles brands in China from April 1 by about 14 percent to cope with soaring ingredient costs.

The Taiwan-owned company is hiking prices of most bowl noodles, which account for 30 percent of its overall instant noodle offerings, in a bid to offset costs of rising palm oil, sugar and flour.

Increased costs are expected to erode the company’s gross margins by 2 to 3 percentage points this year, Tingyi chairman and chief executive Wei Ing-chou (魏應州) told an investors’ conference in Taipei.

Gross profit margin fell to 28.4 percent at the end of last year, from 34.6 percent a year earlier, because of rising raw material costs, according to the statement.

Net income rose 22.4 percent to US$612.6 million, translating to earnings per share of US$0.85.

Last year, sales of instant noodles climbed 27 percent year-on-year to US$2.9 billion, accounting for 43.9 percent of Tingyi’s total revenue. Beverage sales advanced 39 percent to US$3.5 billion, contributing 52.9 percent to overall revenue.

Tingyi — which owns the popular Master Kong and Fumanduo noodle brands — is competing against Uni-President Enterprises (統一企業), Coca-Cola Co and China’s Wahaha Group (娃哈哈集團) in the Chinese beverage and packaged food market.

“China’s beverage sales should remain strong this year, helped by a vibrant consumption mood and a predicted hot summer,” Deutsche Bank said in a report last month.

Similar to last year, challenges confronting such beverage companies as Tingyi include lingering high input costs and fierce competition, as more new products and new entrants come into play, said the securities firm, whose top buy is China Mengniu Dairy Co (中國蒙牛).

Beverage companies are set to continue spending more on advertising and promotion campaigns to stay ahead of the competition, it added.

Deutsche Bank said Tingyi will again launch the “One More Bottle” lucky-draw promotional campaign this year and rivals will follow suit for fear of market share loss.

Admitting the campaign’s -potential drag on its beverage margins, Wei said the company would introduce new probiotic drinks in China to diversify.

The company, however, will stay out of the dairy beverages category as they involve high doses of preservatives.

“We won’t compete with the likes of Mengniu in that area as it isn’t our core competency,” he added.

Tingyi’s shares inched up 0.4 percent to close at NT$36.1 on the Taiwan Stock Exchange yesterday before the earnings release.

The Hong Kong-listed Tingyi, which debuted its Taiwan Depository Receipts in December 2009, saw its shares here drop 17.2 percent last year.

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