CR Beer: Slowing Demand Impairs 2023 and 2024 Earnings; Lowering Fair Value Estimate to HKD 45

We lower our 2023 and 2024 earnings projections for narrow-moat China Resources Beer, or CR Beer, to below Refinitiv consensus, given sluggish demand and potential inventory issues that we think could hurt 2024 sales. We cut our fair value estimate to HKD 45 from HKD 55 per share as a result. The company’s recent share price correction likely reflects heightened concerns about near-term earnings. We reiterate our long-term view that CR Beer’s premium portfolio could be less competitive compared with Budweiser APAC. Valuations for major beer brewers have retreated to single-digit forward EV/EBITDA, below the 10-year historical average in the midteens range. Although shares are undervalued, we recognize there are risks to the industry premiumization trend due to weak consumer confidence. We continue to prefer Tsingtao Brewery due to its regional focus and more appropriate product pricing that fits the current consumption environment. We think near-term sentiment for CR Beer could continue to be suppressed.