On August 26, Master Kong Holdings (00322.HK) released its financial report for the first half of 2024. The data shows that the company achieved a revenue of 41.201 billion yuan during the reporting period, a year-on-year increase of 0.7%. The profit attributable to shareholders reached 1.885 billion yuan, a year-on-year increase of 15.1%. Despite the overall revenue remaining almost flat, the company's gross profit margin increased by 2.1 percentage points to 32.6%, due to a decrease in the cost of sales by nearly 680 million yuan (a drop of about 2.4%) compared to the same period last year.
In terms of business segments, Master Kong’s instant noodle business revenue was 13.814 billion yuan, a year-on-year decrease of 1.0%. This decline was mainly attributed to market pressure and product structure adjustments. Beverage business revenue increased to 27.065 billion yuan, a year-on-year increase of 1.7%.
In May of this year, Master Kong adjusted the retail price of its instant noodle products. The price of bagged noodles increased from 2.8 yuan to 3 yuan, and the classic bowl noodles increased from 4.5 yuan to 5 yuan. At the same time, the company also increased the price of 1L iced tea and green tea beverages from 4 yuan to 5 yuan in the first quarter.
Master Kong noted in the financial report that benefitting from the decrease in raw material prices and product mix optimization, the gross profit margin of instant noodles increased by 1.3 percentage points year-on-year to 27.1%. The gross profit margin of the beverage business also rose by 2.5 percentage points to 35.2% due to product mix optimization and management efficiency improvements. Master Kong did not respond to external requests for comment on these performance figures.
Were consumer reactions to the price increase less than expected?
In late May, Master Kong implemented its third price adjustment for instant noodles in nearly three years. As early as 2021, the company raised prices for 20% of its instant noodle products. In 2022, the prices of bagged noodles, 5-pack noodles, classic bowl noodles, and mini cup noodles were also adjusted. However, starting from 2023, the revenue from Master Kong’s instant noodle business began to decline. For the entire year of 2023, the business’s revenue fell by 2.84% year-on-year. Although a new round of price increases was pushed in 2024, no significant improvement was seen.
A supermarket owner in a second-tier city indicated that Master Kong’s instant noodle sales declined significantly within three months of the price increase. He also revealed that after the price increase, the sales of Master Kong’s instant noodles were surpassed by its competitor, Uni-President. Currently, the price of Master Kong's bagged noodles is 3 yuan and the classic bowl noodles are 5 yuan, while the equivalent products from Uni-President are priced at 2.8 yuan and 4.5 yuan respectively.
The financial report also shows that in the first half of 2024, apart from the increase in sales revenue of container noodles, Master Kong’s high-priced bagged noodle sales revenue decreased by 5.5% year-on-year, medium-priced bagged noodles decreased by 13.8%, and crunchy noodles and other product sales decreased by 9.2%. During this period, the number of Master Kong’s instant noodle production lines decreased by 8, currently standing at 158.
In the beverage business, although Master Kong’s beverage business revenue increased by 1.7% in the first half of 2024, only the tea beverage category achieved positive growth, with revenue increasing by 13.0% year-on-year to 11.392 billion yuan. In contrast, the revenue from water, juice, carbonated beverages, and other products fell by 5.6%, 10.1%, and 3.2% respectively.
The sugar-free tea market becomes a new growth point
With the increasing consumer demand for healthy beverages, the sugar-free tea market continues to rise in popularity, becoming a focus for both Master Kong and Uni-President. Master Kong stated in the report that the company has launched multiple sugar-free tea beverages, keeping up with the market trend towards healthy and sugar-free options. New products such as sugar-free cold brew green tea, sugar-free jasmine tea, and sugar-free iced tea are gradually becoming market staples.
Similarly, Uni-President also launched new sugar-free tea beverages in the first half and adjusted the sweetness of its iced tea to cater to market demand.
According to data from EO Intelligence, the sugar-free tea beverage market grew by 7.9% in 2022, and it is expected that the compound annual growth rate of this market will reach 10.2% between 2022 and 2027. However, with increasing market competition, new and old brands including Genki Forest, Nongfu Spring, and Suntory are actively promoting sugar-free tea beverages, posing a significant challenge to the traditional market positions of Master Kong and Uni-President.
