Company Reports

Chongqing Brewery delivered in-line first-quarter 2024 results, with revenue and net profit growing 7.2% and 16.8% year on year, respectively. We maintain our fair value estimate of CNY 75 per share, which implies a 24 times 2024 P/E and 3.7% dividend yield. Shares reacted positively after earnings and further converged to our fair value estimate. We think the shares are fairly valued currently.

Chongqing Brewery reported full-year 2023 earnings with revenue and net profit in line with its preliminary results. We lowered our revenue growth expectations but raised our aftertax profit margin forecasts slightly through the explicit forecast period, resulting in a 3.8% cut in the company’s fair value estimate to CNY 75 per share. This implies 24 times 2024 P/E, 16 times adjusted EV/EBITDA, and 3.7% dividend yield. While investors could be concerned about the company’s weaker-than-expected near-term growth outlook, especially for its premium segment, we believe Chongqing Brewery remains a quality name, given the company’s distribution strength in its core regions in China. We think the shares are fairly valued currently.

Chongqing Brewery reaches its current scale through a series of mergers and acquisitions, including the takeovers of several brewing plants around Chongqing city in the 1990s and the restructuring with Carlsberg’s China operations in 2020. These acquisitions expanded the company’s distribution network in western China, which remains its core region to date. As a result, Chongqing Brewery held a predominant market share of 66% in this region as of 2022. Thanks to the company's significant presence in the on-trade channel, 82% of the company's sales mix in 2022 was derived from mainstream and above beers. This positioning has resulted in higher margins for Chongqing relative to its domestic peers, placing it second only to Budweiser APAC in terms of profitability.

Narrow-moat Chongqing Brewery delivered disappointing preliminary 2023 results, with revenue and net profit below our estimates. However, we retain our CNY 78 fair value estimate, which implies 25 times 2024 price/earnings, as our longer-term forecasts remain largely unchanged. While we think investors may be deterred by the short-term macroeconomic headwinds and the pressure from consumers trading down, we see shares as undervalued, and the current price presents a good buying opportunity. We believe Chongqing Brewery will remain a quality name in the China beer sector over the long term, underpinned by both its geographical reach and brand mix.

Chongqing Brewery reaches its current scale through a series of mergers and acquisitions, including the takeovers of several brewing plants around Chongqing city in the 1990s and the restructuring with Carlsberg’s China operations in 2020. These acquisitions expanded the company’s distribution network in western China, which remains its core region to date. As a result, Chongqing Brewery held a predominant market share of 66% in this region as of 2022. Thanks to the company's significant presence in the on-trade channel, 82% of the company's sales mix in 2022 was derived from mainstream and above beers. This positioning has resulted in higher margins for Chongqing relative to its domestic peers, placing it second only to Budweiser APAC in terms of profitability.

We recently spoke with the management of Chongqing Brewery and reduced our 2023-24 earnings forecasts by 4% to 9%. We retain our fair value estimate at CNY 78, which implies 25 times 2024 P/E. While we think the company’s near-term sales will be pressured by soft consumer confidence, we remain constructive on the longer-term competitive advantage of Chongqing Brewery. We believe the modest profit growth in 2024 may affect investors’ buying interests, but we think the firm is undervalued at the current price. We like Chongqing Brewery’s geographical and brand mix, which is defensive amid industry downturns and conducive to growth when consumer sentiment picks up.

Chongqing Brewery reaches its current scale through a series of mergers and acquisitions, including the takeovers of several brewing plants around Chongqing city in the 1990s and the restructuring with Carlsberg’s China operations in 2020. These acquisitions expanded the company’s distribution network in western China, which remains its core region to date. As a result, Chongqing Brewery held a predominant market share of 66% in this region as of 2022. Thanks to the company's significant presence in the on-trade channel, 82% of the company's sales mix in 2022 was derived from mainstream and above beers. This positioning has resulted in higher margins for Chongqing relative to its domestic peers, placing it second only to Budweiser APAC in terms of profitability.

We initiate coverage of Chongqing Brewery with a narrow moat rating and a fair value estimate of CNY 78 per share, indicating 24 times 2024 price/earnings and 15 times EV/EBITDA. The company’s competitive advantage stems from its entrenched distribution in core regions, which management has utilized well to drive product mix improvement and margin expansion. In our view, the notable share price correction year to date reflects investors’ cautious view on the premiumization outlook of the beer industry. We think Chongqing Brewery’s share price is fairly valued. However, we anticipate potential upside to business fundamentals if there is an upswing in consumer spending.

Chongqing Brewery reaches its current scale through a series of mergers and acquisitions, including the takeovers of several brewing plants around Chongqing city in the 1990s and the restructuring with Carlsberg’s China operations in 2020. These acquisitions expanded the company’s distribution network in western China, which remains its core region to date. As a result, Chongqing Brewery held a predominant market share of 66% in this region as of 2022. Thanks to the company's significant presence in the on-trade channel, 82% of the company's sales mix in 2022 was derived from mainstream and above beers. This positioning has resulted in higher margins for Chongqing relative to its domestic peers, placing it second only to Budweiser APAC in terms of profitability.