Nestle To Sell China Yinlu Business To Food Wise

Nestle has agreed to sell its Yinlu peanut milk and canned rice porridge businesses in China to Food Wise Co., for an undisclosed sum.

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Nestle (NSRGY) said that the deal covers all of Yinlu’s operations, including its five factories in Fujian, Anhui, Hubei, Shandong and Sichuan. Yinlu brands had sales of CHF 700 million ($768 million) in 2019. Food Wise Co. is controlled by the family of Yinlu founder Chen Qingshui. The transaction is expected to close by the end of this year.

The divestment lets Nestle focus on key categories in China, namely infant nutrition, confectionery, coffee, culinary, dairy and petcare, the food and beverage company said. The packaged food giant said that it sees significant growth opportunities in the greater China region, which represents its second-largest market globally with sales of almost CHF 7 billion in 2019. The company has invested about CHF 800 million in the region during the past five years.

As part of the transaction, Nestle will retain its ready-to-drink (RTD) Nescafé coffee business and distribute the products across most of the greater China region. The company has earmarked Nescafé as a strategic growth driver, in which it seeks to invest more. Meanwhile, Yinlu will continue to manufacture the Nescafé RTD products for Nestle and will distribute the products in several provinces. In addition, Yinlu will continue to produce and sell Nestea products under the Nestle license.

Nestle’s US-listed shares have declined more than 5% over the past month and are now up a mere 3% on a year-to-date basis. (See Nestle stock analysis on TipRanks)

Bernstein analyst Bruno Monteyne, who last month initiated the stock’s coverage with a Buy rating and a $131.71 price target (18% upside potential), argues that Nestle’s “bold innovation” and “effective portfolio management” should allow the company to remain relevant to consumers.

As of right now, Monteyne is the only analyst that has published a review recently. To this end, Nestle has a Moderate Buy analyst consensus, and the average analyst price target matches Monteyne’s.