CICC has reiterated its "Outperform" rating on U-PRESID CHINA (00220), adjusting its 2025/2026 earnings forecasts downward by 3%/6% to RMB2.23 billion/RMB2.47 billion due to intensified competition. The stock currently trades at 16x/14x 2025/2026 P/E. The target price remains HK$11.5, implying 20x/18x 2025/2026 P/E and 28.5% upside potential.

The company reported its Q3 2025 operational results, with net profit reaching RMB726 million (+8.4% YoY), in line with market expectations. Key takeaways from CICC's analysis include:

**Flat Q3 Revenue: Food Growth Offsets Beverage Weakness** Q3 revenue was flat YoY, with food segment sales posting low-to-mid single-digit growth driven by strong performance of Tomato Beef Noodles, Pickled Cabbage Beef Noodles, and Manhan Feast. Beverage revenue declined slightly due to market saturation and heightened competition amid food delivery promotions. By product, Assam milk tea remained stable, while juice and Hai Zhi Yan faced mild pressure. Double Extract and Huanshen brands achieved double-digit growth.

To counter inventory pressure in the beverage sector, the company prioritized stock clearance, enhanced product freshness management, and allocated resources to high-yield channels like sports venues and transit hubs, laying groundwork for 2026. New products, including 100% NFC blueberry juice and lemon-ginger-apple blends, expanded its portfolio. Contract manufacturing revenue likely grew triple-digit YoY.

**Margin Improvement and Lower Expense Ratio** The 9M 2025 gross margin improved slightly YoY, supported by lower PET costs, narrowing palm oil headwinds, and higher capacity utilization. Beverage margins outperformed noodles due to favorable raw material prices, though sequential gains were tempered by rising costs and competition. Q3 expense ratio declined YoY as the company optimized spending and focused on branding.

**Steady Strategy for 2026 Growth** October beverage sales saw a steeper decline than Q3, attributed to delivery subsidies and industry destocking. However, with healthy inventory levels and stable pricing, the company is positioned for 2026 revenue growth by expanding high-potential sales points. Profitability is expected to improve further in Q4 and 2026, backed by cost tailwinds and disciplined expense management.