CR Beer To See Faster Sales and Profit Growth After Acquiring Jinsha; Raising FVE to HKD 58

Narrow-moat China Resources Beer, or CR Beer, completed its acquisition of 55.19% equity interest in Guizhou Jinsha Winery on Jan. 10. We spoke with management recently and see minimal profit increment to CR Beer this year given the less favorable product mix of Jinsha and interest expense arising from the acquisition. But we lift our medium-term top-line and net profit estimates through 2026 by 2 and 6 percentage points, respectively. In our view, this acquisition could add another sales and profit growth driver for CR Beer over the long term. The company’s expertise in alcoholic beverage distribution and operational management could help Jinsha outcompete other smaller baijiu brands as the industry continues to consolidate. We moderately increased our stage II EBI growth forecasts with the expectation of better synergies following this acquisition. With the long-term assumptions and foreign exchange adjustment, we raise our fair value estimate to HKD 58 (from HKD 52), which implies 16 times 2023 EV/EBITDA and 32 times 2023 P/E, broadly in line with its 10-year historical average. We think the recent bullish sentiment for the stock has largely priced in a 2023 earnings rebound due to reopening and thus we see its shares as fairly valued at the current price.