Budweiser APAC Earnings: China Fueled Growth for Q2, but S. Korea Was Drag

Narrow-moat Budweiser APAC 01876 reported first-half 2023 results that were below our estimates, with soft momentum in South Korea being the key drag. We think investors are concerned about Budweiser APAC’s market share in South Korea as well as the trajectory of premiumization in China in the near term. But we see these issues as temporary headwinds and think the company’s share price remains undervalued.

We see the company’s market position in the premium beer market in China staying intact. Positive mix shift as well as on-trade channel resilience drove strong growth in China, consistent with our expectations. Cost pressure and operating deleverage in South Korea dragged down the gross margin but operating margin was only moderately below our estimates due to lower operating expenses.

To reflect the softer first-half profit, our 2023 revenue and net profit estimates are lowered by 1% and 13%, respectively. We lifted our WACC assumption slightly to reflect a more likely debt/equity ratio, which drove a reduction in our fair value estimate to HKD 22 per share from HKD 24 per share. At our fair value estimate, Bud APAC is trading on 15 times 2023 EBITDA, broadly in line with China Resources beer. 2023′s reported earnings also reflect the impact of currency headwinds, which we expect to reverse over the next few years.