By Alison Leung and Jack Reerink
BEIJING (Reuters) - Tingyi (Cayman Islands) Holding Corp. (0322.HK: Quote, Profile, Research, Stock Buzz), China's top instant noodle maker, forecast improved profitability as it ekes out manufacturing savings and planned a 30 percent jump in beverage output in 2007.
Group Chief Finance Officer Frank Lin said at the Reuters China Century Summit that Tingyi is aiming for net profit margins of 8 percent "in the near future," versus 6 percent in the first half.
Production efficiencies such as using less plastic for bottles should offset rising materials costs and advertising spending on bottled drinks and instant noodle bowls, Lin said. Tingyi, for example, has managed to cut the weight of its plastic bottles by 2 grams each, saving $20 million a year.
"Eight percent is achievable," Lin said. "Raw materials costs have been increasing, so we have to improve the product mix and focus on high-margin products.
The company's focus is on beverages, which now make up half of sales and 57 percent of profits. It's introducing a new product, bottled coffee, and already is selling 10,000 bottles a day in Shanghai. Chinese consumers are ready for coffee, Lin said, adding Tingyi has an uncanny ability to catch the next consumer wave.
"Five to seven years ago, we launched tea for university students -- our company caught these fashion waves," Lin said, adding it will "take 3 to 5 years for consumers to recognize a (new) brand."
Tingyi's gross profit margin rose 1.4 percentage points to 33 percent in the first half, and Lin expected to maintain that level for the rest of the year. One reason is economies of scale: The company's 61 factories can deliver drinks to shops anywhere in China within 24 hours, he said.
Taiwan-managed Tingyi, which has become China's biggest producer of bottled tea with its Master Kong brand taking almost half of the market, plans to add 27 production lines for mineral water in 2007. Continued...
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