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With Covid-19 a global pandemic, the Hang Seng Index has recorded drastic falls and fell below 26,000 on 10 March. However, opportunities always come alongside crises.
Domestic demand driven by the pandemic give rise to the emergence of some stocks. Here’s one Hong Kong stock I think will benefit during this time of global uncertainty.
Worthy stock even after crisis
Instant noodle giant Nissin Foods Co Ltd (SEHK: 1475) is a top stock for investors during this period of isolation. Currently, many beneficial factors contribute to Nissin’s performance. Still, it’s not just a one-hit wonder but another candidate that can beat the market over the long term.
A noteworthy strategic partnership with a Chinese food giant also caught my attention. Here are two reasons support my view that it has a positive outlook.
1. Rich brand development experience with history of success
Nissin has a brand history of 61 years, particularly its status in the instant noodle market. In the past 30 years, it has built up Damae Iccho and Cup Noodles, the two flagship brands that many are familiar with.
The success is down to the brand’s continuous innovation and out-of-the-box promotional efforts. From its promotional campaign (in Japan) that personalised the three new exotic-flavoured cup noodles, we can tell how skillful Nissin is in making an impression on consumers.
2. Strategic plans to capture opportunities in Chinese market
According to 2018 numbers, the breakdown of revenue in China and Hong Kong was approximately 55:40. In recent years, the compound an nual growth rate (CAGR) of Hong Kong’s premium instant noodles market has slowed down and even shown a declining trend.
On the other hand, the CAGR of the Chinese market is still steadily rising with an optimistic projection of 11% growth. Meanwhile, the potential growth can be enormous as the market capitalisation of Nissin is merely HK$7.2 billion (US$928.8 million) when China’s instant noodle sector has a total addressable market of HK$100 billion.
To further capture the business opportunities in China, Nissin has been conducting strategic planning intensively. For example, as this year began it signed a shareholder and business cooperation agreement, which proposed starting a new business in Shanghai to bring a wider choice of products to consumers.
We can expect more to come in the Chinese market as its expansion blueprint has just started to be put into action.
Stay positive despite challenges
To conclude, there are factors supporting the development of Nissin, but there are a few more things to consider before giving the stock the green light.
Nissin must face the direct competition from instant noodle giant Tingyi Holdings (SEHK: 322). With a deep-rooted presence in China, the competitor has an advantage in localisation, meaning that it has a better knowledge of the local market preferences.
Furthermore, as its retail price is highly competitive, it has a potentially higher penetration in Tier-2 and Tier-3 cities. Apart from these big names, competition from Korean noodles or other close alternatives should also be monitored.
Calls for healthier and more nutritious food can be a source of pressure. Should Nissin keep the current position or reposition itself with new products that cater to the health-conscious consumer? Today, we don’t see solid measures to tackle this obstacle.
Although there are future challenges to contend with, Nissin has still proven itself a must-buy for long-term investors given its extremely promising outlook.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Ashley Man doesn't own shares in any companies mentioned.