Executive summary
China’s F&B sector offers good risk-reward balance in the down
cycle; lower raw material costs facilitate margin expansion.
However, rich valuation and the economic recovery indicate
downside risk. We think it is time to take profits on selected stocks.
We initiate on Uni-President at UW(V), Tingyi at Neutral and Want
Want at Neutral (V); downgrade China Agri to UW(V) from OW(V).

Overview
In this report, we initiate coverage on Tingyi (0322.HK), Uni-President (1216.TT) and Want Want
(0151.HK) and update our views and forecasts for China Agri, Tsingtao and Yurun Food. We also present
a comprehensive sector view and industry update on the Greater China F&B universe.
F&B sector
Earnings visibility and strong balance sheet
The F&B sector has good fundamentals, combining earnings visibility and strong balance sheets with low
gearing. The sector offers good risk-reward balance in the near term and benefits from China’s growth
story in the long run. We believe revenue growth in the mid-high teens is feasible in the next two years.
Margin expansion
Lower prices of raw materials (mainly agricultural commodities) bring opportunities for gross margin
expansion across the board. However, in order to keep market share and boost volume, most consumer
plays will have to raise SG&A expenditure.
To benefit, companies will need:
􀀗 Strong market share or niche market positioning.
􀀗 The ability to execute value chain integration.
􀀗 A focused strategy.
Valuation, economic recovery suggest downside risks
China’s F&B sector has had a strong run since the start of the economic slowdown and its valuation now
looks expensive. It trades at 25x 2009e PE and 3.6x 2009e PB vs c14x 2009e PE and c2x 2009e PB for
MSCI China.

As the signs of recovery continue to surface, we think investors may want more exposure to cyclical
stocks, reducing the likelihood of F&B multiples expanding further, at least in the near term. This helps
explain why the sector has underperformed the HSCEI by 9% since April 2009.
We suggest it is time for investors to take profits on selected stocks.
Investment themes
The key investment issues in the sector are:
􀀗 Industrial structure: Dominant players are better positioned to deal with pricing or cost pressure
and have well-established distribution systems.
􀀗 Risk-reward balance: We prefer industries where the risk to growth is low, especially as consumers
seek cheaper food and beverages.
􀀗 Balance sheet: We prefer companies that have sustainable profitability and solid balance sheets.
􀀗 Valuations: We suggest investors take profits on selected stocks that, in our view, are now
expensive.
Stocks
Uni-President (1216.TT)
We initiate coverage on Uni-President with an Underweight (V) rating and a target price of TWD31.3.
Key themes:
􀀗 Earnings outlook is volatile due to diversified business model.
􀀗 Its China noodle business is restructuring and could break even in 2010.
􀀗 Taiwan retail business is weak this year.
􀀗 Complex balance sheet is weaker than peers.
􀀗 Valuation of non-core business looks stretched.
Tingyi (0322.HK)
We initiate coverage on Tingyi with a Neutral rating and a target price of HKD11.8. Key themes:
􀀗 Dominance in noodles and leadership in soft drinks should ensure mid-high teens earnings growth in
2009.
􀀗 Margin expansion is expected due to lower agri-feedstock costs.
􀀗 Reasonable balance sheet.
􀀗 Valuation is full.

Executive summary 1
F&B sector update 8
Instant noodles 12
Soft drinks 17
Brewing 24
Pork processing 29
Company profiles 31
Tingyi Foods (0322.HK) 32
Uni-President Enterprises (1216.TT) 49
Want Want (0151.HK) 66
Tsingtao Brewery (0168.HK, 600600.SS) 82
China Agri (0606.HK) 91
Yurun Food (1068.HK) 102
Appendices 111
Appendix 1: HSBC forecasts vs. consensus
Appendix 2: Valuation of Greater China food and beverage
sector
Appendix 3: Valuation of Taiwanese conglomerates
Appendix 4: Valuation of global Agri-processing and biofuel
firms
Appendix 5: Metrics showing a quick comparison of Tingyi
and Uni-President
Disclosure appendix 117
Disclaimer 120