Budweiser APAC Earnings: Soft Volume Dragged Results; Lowering Fair Value by 5% to HKD 17.50

While narrow-moat Budweiser APAC’s first-quarter volume and average selling price, or ASP, trailed consensus and our estimates, its EBITDA growth exceeded expectations. Industry headwinds in China and a tough comparison dragged the top line, but gross margin expansion drove EBITDA growth, especially in South Korea. We reduced our 2024 net income forecast by 4% to factor in lower sales, but our 2025-28 earnings estimates are largely unchanged. The cut in volume projections and negative currency impact contributed equally to our downward revision in sales. We also lowered our stage II EBI assumption to 5%, from 6%, due to slower long-term volume growth assumptions given China’s maturing beer market. We expect price/mix to predominantly drive long-term EBI growth. As a result, our fair value estimate is reduced to HKD 17.50 per share, from HKD 18.50. This implies 29 times 2024 price/earnings, 12 times enterprise value/EBITDA, and 2.7% dividend yield.