Tsingtao Earnings: Slowing Volume Dragged Results, but Selling Price Beat Expectations

Narrow-moat Tsingtao Brewery reported 2023 results that fractionally trailed our estimates, due to lower volume sales and higher selling expenses. Gross margin, however, beat our expectations. Price growth in 2023 was driven by core regions in Northern China, consistent with our view that the company has stronger levers to improve the product mix in its core regions due to its dominant market position. We lowered our volume growth expectations but raised our price/ton estimates through the explicit forecast period, resulting in a minor earnings cut of less than 3% through 2028. We retain our fair value estimate at HKD 78 per H-share (CNY 72 per A-share), which implies 22 times 2024 price/earnings, 11 times EV/EBITDA, and 3% dividend yield. While investors could be concerned about volume momentum slowing in the near term, we think the company’s distribution strength in its core regions remains intact. We see shares as undervalued at the current price.