Daiwa has issued a research report maintaining its "Outperform" rating on Tingyi (Cayman Islands) Holding Corp. (00322) but has lowered the target price from HK$14 to HK$13.

The firm forecasts that, benefiting from locked-in raw material prices, Tingyi's core earnings for the first quarter of 2026 will increase by approximately 20% year-on-year. While second-quarter earnings are expected to see a slight year-on-year decline due to the depletion of low-cost PET inventory in May, total revenue for the first half is still projected to grow by 2% year-on-year.

Reported net profit for the first half is anticipated to rise by 7% year-on-year, despite a land disposal gain of RMB 180 million in the first half of 2025. Core recurring net profit, excluding non-recurring items, is forecasted to increase by 15% year-on-year to RMB 2.433 billion, which is about 3% above market expectations.

The report highlights that PET prices have fallen rapidly over the past two months, from around RMB 9,000 per ton to approximately RMB 7,000 per ton, compared to Tingyi's procurement price of about RMB 5,500 per ton in the second half of 2025. PET accounts for 15% of the cost of goods sold for Tingyi's beverage segment and represents a mid-to-high single-digit percentage of the group's total COGS.

If PET prices stabilize at the current level of RMB 7,000 per ton, it is expected to add RMB 100 to 200 million in year-on-year costs for the second half of 2026. However, this is partially offset by favorable trends in other raw material costs and ongoing improvements in production efficiency.

Regarding business performance, the report notes that through effective promotional strategies and channel expansion, Tingyi is expected to achieve its target of low single-digit year-on-year revenue growth for both its instant noodle and beverage businesses in 2026.

Specifically, the ready-to-drink tea segment, which constitutes 43% of beverage revenue, launched a "scan-to-win" campaign in March. This initiative drove mid-to-high single-digit year-on-year revenue growth for the first half and successfully captured market share from Uni-President China Holdings Ltd (00220).

In response to the latest raw material price trends, Daiwa has lowered its earnings per share forecasts for Tingyi for 2026 to 2028 by 2% to 6%. Concurrently, considering a general de-rating in the consumer sector's valuation, the firm has reduced the target price-to-earnings ratio from 15 times to 14 times, applying this rolling valuation to the average forecasted EPS for 2026 to 2027.