Is Nissin Noodles Benefitting From Hong Kong’s Dining-In Ban?

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Nissin Foods Co Ltd (SEHK: 1475) issued a positive profit alert recently and expects its net profit in the first half of 2020 to increase by 30% year-on-year.

This is mainly due to the increase in demand for instant noodles amid the Covid-19 outbreak, which has increased sales in China and Hong Kong.

Nissin Foods Holdings, the parent company of Nissin Foods Co Ltd, announced on the same day that its operating profit in China increased by 91.6% year-on-year to ¥1.6 billion (US$15.1 million) as of June 2020.

A leading US brokerage pointed out that Nissin’s China business saw extraordinary growth in sales and operating profit in the first two quarters of 2020.

Nissin Foods is expected to continue its strong sales performance in the future, amid Hong Kong’s anti-pandemic measures.

Furthermore, as constituent stocks of the MSCI Hong Kong Small Cap Index, Nissin Foods has outperformed the index’s year-to-date performance by over 9% as of 30 June.

High sales growth

During the height of the Covid-19 outbreak in the second quarter, Nissin Foods announced its strong business performance.

Revenue from its China operations was ¥11.5 billion, an increase of 19.5% year-on-year, and operating profit rose 91.6% to ¥1.6 billion, due to the quick expansion of instant noodle products in China.

In addition to the second wave outbreak in Hong Kong, the stay-at-home practice has increased the demand for high-quality instant noodles.

In this environment, thanks to the inelastic nature of instant noodles, sales have increased in both China and Hong Kong for popular brands such as Demae Iccho and Cup Noodles.

Nisshin Foods’ revenue this year was approximately HK$884 million, an increase of 10.6% year-on-year, with China sharing 57.9% of total revenue. This shows huge potential in Nissin’s growth going forward.

Business development in China

Despite Covid-19 having exerted downward pressure on China’s travel, entertainment and retail industries, premium instant noodles maintained its strong sales in first-tier cities such as Shanghai, Zhejiang and Jiangsu.

The respected cities maintained their momentum and this can be attributed to the collaboration of Cup Noodles with online animation platform that target the youth in China.

To further expand the product portfolio, Nissin’s joint venture with Liu Feng has proved to be a success as this new distribution partnership has already contributed to an increase in sales of Cup Noodles and Kagome juice in six months. 

Foolish takeaway

The strong half-year business performance gives a vote of confidence to investors amid weak retail sales in other consumer products.

Instant noodles are very popular in Asian culture and the no-dine-in policy will not only benefit Nissin Food’s business in Hong Kong.

I also believe there will be more business potential in China and stock price will advance given the Covid-19 situation remains ongoing.