Better Buy: Vitasoy vs. Nissin Foods

Vitasoy International Holdings Ltd (SEHK: 345) and Nissin Foods Co Ltd (SEHK: 1475) are two well-known consumer products manufacturers in Hong Kong and mainland China.

The former is famous for its flagship Vitasoy-branded soya milk while the latter is a leading instant noodle manufacturer with brands like Cup Noodles, Doll, Demae Iccho, and others.

Both companies have a great business models thanks to the strength of their products and the depth of their distribution channels. But which is the better buy now for long-term investors?

I’ll try to get some perspective by comparing both companies in two important areas; business performance and valuation.

Business performance

The first aspect that I’ll look into is the performance of both companies. The idea is to understand which company performed better in the last few years. This should better help us predict their future trajectories.

I’ll begin with Vitasoy. In the last five years, Vitasoy grew its revenue from HK$4.5 billion (US$580.6 million) in 2014 to HK$7.5 billion in 2019. Also, its net profit grew from HK$306.7 million to HK$695.9 million during that period. The former was up by 67% while the latter surged 127%.

Comparatively, Nissin Foods grew its revenue from HK$2.5 billion in fiscal 2014 to HK$3.1 billion in fiscal 2019. Similarly, net profit increased from HK$149.5 million to HK$251.0 million. Both were up by 24% and 68%, respectively, during that period.

Going forward, both companies are well-positioned to grow their business owing to the rise in consumption in mainland China.

Still, Vitasoy’s higher growth rate in growing its business puts it in a slightly better position as compared to Nissin Foods (assuming that Vitasoy can sustain its past performance going forward).

Winner: Vitasoy

Which company is cheaper?

The next thing I’ll consider here is the valuation of both companies. The two valuation metrics I will focus on are the price-to-book (PB) ratio and price-to-earnings (PE) ratio.

To start with, Vitasoy and Nissin Foods have PB ratios of 10.1 and 1.9, respectively. Next, Vitasoy and Nissin Foods have PE ratios of 58.5 and 26.8, respectively.

Comparatively, the market average’s PB and PE ratio stood at 1.2 and 13.2, respectively. Here, I am using the iShares MSCI Hong Kong Index Fund (NYSE: EWH) as a proxy for the market average.

Overall, we can see that both companies are trading at higher valuation when compared to the market average. Still, Nissin Foods is the cheaper food manufacturer here thanks to its lower PB and PE ratio.

Winner: Nissin Foods

Foolish conclusion

In sum, both companies have delivered admirable track records in growing their business and should continue to do so in the future thanks to the growth in consumption in mainland China. Understandably, both companies are trading at a higher valuation than the market average.

Overall, there is no clear winner. Though Vitasoy delivered a better growth record, its valuation is significantly higher than that of Nissin Foods.

Thus, investors will need to decide whether they want growth (Vitasoy) or value (Nissin Foods).

分享給你的朋友