China Food

Master Kang’s performance soared against the trend, with a net profit of more than 2.6 billion yuan in the first half of the year!


This year’s epidemic situation has been soaring instant noodles, what substantial benefits to the company? Master Kang, a food giant, offers his own answer.


Just now, Master Kong Holdings (0322. HK), which is listed on the Hong Kong stock exchange, released its mid-term performance in 2020. As of June 30, this year, the company’s earnings increased by 8% year-on-year to 32.934 billion yuan (the same below); the profit attributable to shareholders of the company increased by 58.37% to 2.38 billion yuan; the net profit was 2.653 billion yuan, up 47.26% year on year.


The company believes that the performance growth in the first half of the year benefited from the digitization of the system, the flattening of the organization and the flattening of the channels. It is close to the consumers and terminals, timely grasp the changing needs with the development of the epidemic situation, make accurate decisions, and grasp the market opportunities, which fully demonstrates the group’s adaptability to emergency.


“Relying on resilience and agility, the group’s profit in the first half of 2020 will reach a record high.” The company said in the financial report.


Let’s take a look at instant noodles and drinks.


Instant noodles double new high


According to the financial report, in the first half of the year, the profit of Master Kang’s instant noodle business was 14.910 billion yuan, up 29.16% year-on-year, accounting for 45.27% of the group’s total income; the profit attributable to shareholders was 1.694 billion yuan, up 93.54% year-on-year.


According to Nielsen data, in the first half of the year, the overall sales volume of instant noodle industry increased by 5.6% year-on-year, and the sales volume increased by 11.5% year-on-year. The sales volume of Master Kang accounted for 42.9% and the total sales volume accounted for 45.8%, which increased year on year and still ranked first in the market. “During the epidemic period, the instant noodle business division gave priority to ensuring the supply of e-commerce and modern channels, ensuring that products reach consumers in the shortest time, and promoting the ultra-high growth of e-commerce channels.” Master Kang said in the financial report.



In terms of beverages, the overall income of Master Kang beverage decreased slightly by 4.09% year-on-year due to the impact of the epidemic on outdoor consumption in the first half of the year. Thanks to the improvement of gross profit margin, the year-on-year decrease of other operating expenses and the decrease in the proportion of minority shareholders’ equity, the profit attributable to shareholders of the beverage business company increased by 18.73% to RMB 838 million.


However, with the epidemic situation under control, drinks rebounded significantly from the second quarter. Among them, Master Kang has increased brand investment since the second quarter of tea drinking to enhance its brand appeal to young consumers and family consumers.


It is understood that this year, Master Kang’s drinks actively adjust inventory, so that the channel maintains a natural sales curve, so dealers are less affected by the epidemic. According to the latest data of Nielsen in the second quarter, the growth rate of Master Kang in ready to drink coffee and packaged water is significantly higher than the market average.



According to the data, in the first half of the year, the sales volume of instant tea (including milk tea) of Master Kang accounted for 42.9%, ranking first in the market; juice sales accounted for 15.2%, ranking second in the market; instant coffee sales accounted for 12.2%, ranking second in the market.


Considering that consumers’ attention to food safety has risen to a new height after the outbreak, they are more willing to choose big brands with higher trust and reliability.


Snacks generation noted that Yu Jian, general manager of Greater China region of Kaidu consumer index, had previously pointed out that the top brands in many categories were in the growth state during the epidemic period. He believes that in addition to the high popularity, the logic behind brand growth is the trust of consumers in these big brands. Over the years, consumers have accumulated the basis of trust. “Even if the brand is not advertised in the epidemic situation, but consumers are willing to buy big brands in uncertain circumstances.”.



Looking forward to the second half of the year, Master Kang believes that although the global epidemic situation is not yet clear, the economy is expected to steadily improve as the state and government launch relevant policies to encourage consumption. “The instant noodle business and beverage business of the group will also have a good growth along with the domestic economic recovery, especially when drinks enter the traditional sales peak season in the second half of the year, which is expected to continue the rebound trend.” The company said.


Rapid strain


It is not difficult to find that Master Kang was able to hand over the report card of revenue and profit growth in the first half of the year, mainly due to the company’s rapid response and positive response to the epidemic.


On the one hand, Master Kong gives priority to the development of online channels, and continues to promote the channel rationalization strategy, so that the new retail business unit can grow at a high speed. Over the past few years, after noticing the rapid rise of new retail platforms, the company has begun to dig deep into the advantages of traditional channels such as supermarket, strengthen the cooperation with ALI retail link, Jingdong new channel and Suning e-buy, and strengthen the layout of emerging channels such as convenience stores.



On the other hand, Master Kang supported the smooth development of production, sales and logistics during the whole epidemic period with the help of the group’s digital operation system and data integration of the sharing center. One example is the surge in demand for instant noodles during the outbreak. The company quickly adjusted its supply chain and restarted production in the first place after it was detected by digital operation system monitoring. At the same time, big data is used to solve the problems of production and marketing coordination, logistics and transportation, raw material supply and so on.


It is understood that due to timely insight into the increase in demand for bagged noodles and large-size noodles brought about by the growth of consumer demand at home, and timely organization of accelerated production, the sales volume of such products recorded a significant growth during the epidemic period. In addition, in addition to ensuring the basic supply, Master Kang has developed a number of products with new taste and multi specification packaging. In addition, it also released micro videos through social media to interact with consumers, focusing on promoting creative cuisine, so as to attract more young and family consumers.



For example, in May this year, the company launched a brand-new “hand rolling noodles” product, as well as the upgraded “mix noodles” and its new specifications of bag noodles; in June, it launched “Suda noodle shop cooked noodles” for home consumption. In e-commerce, convenience, boutique supermarkets and other channels, we mainly promote “Suda noodle restaurant” bowl noodles for the scene of returning to work, and design the “self heating noodles of Suda noodle restaurant” for the scene of going out.


In terms of drinks, during the epidemic period, the supply of 4.5L natural mineral water “conservation spring” was promoted according to the daily demand of high-quality middle-class families. After the epidemic eased, in line with the needs of consumption upgrading and consumers’ awareness of nutrition and health, high-end “sugar free tea series” and “drinking boiled water” with the concept of 135 ℃ ultra-high temperature sterilized cooked water were launched.



Master Kang also pointed out in the financial report that in the face of “the new normal in the post epidemic era”, it is expected that the trend of consumption stratification, online migration of channels, and consumption demand for health and safety will become increasingly obvious. The company said that it will still actively respond to changes in consumption trends, adhere to the channel rationalization strategy, actively develop multiple channels, and continue to promote core development strategies such as food safety and digital transformation.


Promising future


Xiaoshidai noted that CICC pointed out in a latest research report that the sales of instant noodles through Master Kang’s modern channel increased by 40% from January to may, according to the CICC zero research monthly report. In terms of beverages, grassroots research shows that carbonation took the lead in increasing in April, mainly due to indoor consumption scenarios.


The report also pointed out that since the price of water was lowered to 1 yuan at the beginning of the year, the income of water also increased year on year in April. Tea and juice growth turned positive in May and further accelerated in June, in line with the company’s management’s previous guidelines. The grassroots research of CICC also pointed out that the sales of Master Kang instant noodles reached a record high in March and April. Although the growth rate fell month by month in May and June, “it still maintained a healthy growth trend.”.



In addition to CICC, in July alone, several major international banks, such as UBS, Goldman Sachs and Morgan Stanley, raised the target price or rating of Master Kang.


According to public information, S & P, one of the three major international rating agencies, adjusted Master Kong’s outlook from “stable” to “positive” on July 24 and confirmed its “BBB +” long-term issuer credit rating. S & P believes that Master Kang will remain the leader in China’s instant noodles and ready to eat tea market. Master Kong’s debt leverage has improved significantly over the past few years, with net cash generated from EBITDA growth, debt reduction and strong free operating cash flow.


Earlier, on July 10, Moody’s, another international authoritative rating agency, issued a research report confirming that Master Kong’s issuer was rated “baa1” and upgraded its rating outlook from “stable” to “positive”. The agency believes that although the business environment is challenging, Master Kong is currently low leverage, strong liquidity and stable cash position, and expects Master Kong to maintain its strong financial position in the next 2-3 years.



It is not difficult to find that, compared with the explosive growth trend in the first half of the epidemic period, the recognition of Master Kang by many international organizations comes from the evaluation of its business sustainability in the long term in the future.


In addition to promoting the sustainability of enterprise operation and performance growth, Master Kang has also been recognized by international authorities in terms of sustainable development. Last month, the company has just been selected as an excellent case in the report on sustainable development of Chinese enterprises by the United Nations development program. The company said in the financial report that it will continue to promote intelligent manufacturing and green manufacturing in the future, practice the social responsibility of energy conservation and emission reduction, and realize the double growth of economic and environmental benefits.


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