Tsingtao Brewery Earnings: Cost Savings Lifted Margins Despite Sluggish Volume; Retain Valuation

Narrow-moat Tsingtao Brewery’s first-quarter results were decent with net profit growing 10% year on year despite a 5% decline in revenue, thanks to gross margin expansion and lower operating expenses. This is consistent with our constructive view on Tsingtao’s ability to achieve cost-savings in times of an adverse industry environment. Although we cut our 2024 revenue estimate moderately by 2 percentage points to incorporate the recent trend, we also raised the net margin forecast by 30 basis point to factor in the better cost savings. This leaves our 2024 net income estimate largely unchanged. 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 2.8% dividend yield. We continue to see Tsingtao Brewery as a quality name in the sector and its H-shares as undervalued.