Company Reports

Narrow-moat China Resources Beer, or CR Beer, reported full-year 2023 results that exceeded our estimate on net profit but missed on the top line. While beer volume growth was below our projection, price/kiloliter came in better than expected. The subpremium beer portfolio continued to drive improvement in profit/kiloliter for the company. CR Beer’s baijiu segment results also highlighted the focus on lowering channel inventories and maintaining price stability in 2023. Although we reduce our five-year revenue compound annual growth rate by 2 percentage points to 7% to factor in lower beer pricing and baijiu sales, we retain our net income projections as we anticipate better cost savings from the synergies of the beer and baijiu businesses. We like the execution on consolidating Jinsha Winery thus far and view management’s strategies constructively.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

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.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

Narrow-moat China Resources Beer delivered first-half results that slightly outpaced our estimates and largely met Refinitiv's consensus. Although the firm delivered 20% EBIT growth, the share price still reacted negatively likely due to the slight miss in price growth for beer. We reduce our 2023 price growth and net profit estimate to account for weaker third-quarter sales and an unfavorable mix for the beer segment in the second half. We currently assume price growth would rebound in 2024 as broader consumption improves, but we retain our longer-term view that CR Beer’s premium segment volume growth would slow from 2025 onward.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

Narrow-moat China Resources Beer, or CR Beer, reported 2022 results that met our below-consensus estimates on revenue, but exceeded our estimates on net profit. Better-than-expected cost-savings drove the bottom line beat in 2022. Management remained upbeat on a beer revenue and profit rebound in 2023, consistent with our expectations. The company also shared its view on the recently acquired baijiu business, which we would sum up as constructive on the long term, but requires patience in the near term. We have raised our 2023 sales and profit estimates on a better beer segment outlook, but left our fair value estimate unchanged at HKD 58 per share, which implies 16 times 2023 enterprise value/EBITDA. We think its share price is fairly valued, though in the near term, the market could view the stock as benefiting from the rebound in consumption in China, therefore driving short-term momentum.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

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.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

Narrow-moat Budweiser APAC hosted an Investor Day on Dec. 1 to highlight its medium-term growth strategies. What stood out to us is the company’s growth potential in India as well as the granularity of growth strategies in China. We remain positive on the longer-term competitiveness of Budweiser APAC in China and India. We think visibility in earnings recovery has increased as COVID-19-control measures in China are finetuning toward a less stringent direction, whereas the official narrative of the omicron variant has begun to highlight its modest severity. We lifted our 2023 top-line and earnings growth outlooks for Budweiser APAC as a result and incorporated our revised medium-term growth expectations for the Indian market. We are raising our fair value estimate for the firm to HKD 24 per share from HKD 19 per share. The assumption of gradual reopening in China to a largely normalized state in second-quarter next year is also set to benefit domestic brewers. Hence, we also raise our 2023 estimates for narrow-moat China Resources Beer and Tsingtao Brewery. We lift our fair value estimates for China Resources Beer from HKD 49 per share to HKD 52 per share and for Tsingtao Brewery from HKD 69 per share to HKD 74 per share. However, we think the market has largely pre-empted the reopening story for these stocks following the recent rally. As a result, we think share prices of these brewers are fairly valued at their current levels.

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

We transfer coverage of three beer breweries, China Resources Beer (CR Beer), Budweiser APAC, and Tsingtao Brewery to a new analyst. We retain the narrow moat ratings for the latter two companies but upgraded the moat rating for CR Beer from none to narrow. We retained our fair value estimates for Budweiser APAC (at HKD 19 per share) and Tsingtao Brewery (at HKD 69 per share) but moderately lowered our fair value estimate for CR Beer to HKD 49 from HKD 52 per share. While we expect some near-term volatility in the brewers’ market values based on expectations around the reopening of the on-trade, despite sharp rally and convergence toward our fair value estimates, we believe the Chinese brewers remain a way to play the re-opening trade and will benefit from a temporary shift toward mass market beer in the next few quarters. From a long-term perspective, we favor CR Beer given its scalable distribution and more competitive portfolio.

China Resources Beer. or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.

No-moat China Resources Beer’s, or CR Beer’s, first-half results delivered no major surprises. Revenue growth was in line with expectations, while the decent 17% year-over-year adjusted EBIT growth (excluding one-offs) beat our estimates slightly, owing to lower sales and marketing expenses amid widespread lockdowns in the half-year. Management made little change to its full-year sales and marketing plans, and we believe spending will catch up in coming quarters, as COVID-19 lockdowns ease. As such, we maintain both our fair value estimate of HKD 52 per share, and full-year net profit forecast of CNY 4.2 billion, which implies an accelerating sales growth in the second half. And we think pent-up demand for socializing (coinciding with a hotter summer), a solid premiumization trend, and a slightly weakened cost outlook, are pointing to an improved second-half performance. We think the shares are fairly valued presently, with the current 20 times 2022 EV/EBITDA as of Aug. 17, up from the 16 times as of the end of June, appropriately reflecting an improvement from the first-half environment.

China Resources Beer, or CR Beer, reports first-half results in late August, and given the beer sector’s operating statistics and our recent channel checks, we expect the firm to post 6%-8% year-over-year top-line growth in the first half, despite disruptions from sporadic lockdown measures in China. This would largely be driven by the company's premiumization efforts, while sales volume will likely remain flat from a year ago. Coupled with better operating efficiency and slightly lower sales and marketing expenses, we expect CR Beer’s core operating profit to grow 8%-10% from a year ago. This is largely in line with our earlier assumptions, and we retain both our full-year net profit forecast of CNY 4.2 billion and fair value estimate of HKD 52 per share. We think shares are fairly valued presently.

China Resources Beer’s, or CR Beer's, second-half 2021 sales revenue slightly missed our estimates, as coronavirus-related shutdowns and weak consumption dampened demand. On the other hand, cost controls were better than we anticipated and full-year core profit of CNY 3.6 billion was in line with our expectations. Although the city lockdowns in March are adding risk to beer demand, we believe it is most likely a near-term challenge and our long-term outlook of the brewery sector remains unchanged, with a promising outlook that benefits from continued premiumization in China’s beer market. As such, we lower our 2022 net profit forecast to CNY 4.2 billion from CNY 4.5 billion, while maintaining our fair value estimate for CR Beer at HKD 52.00 per share and midcycle forecasts are unchanged. We expect CR Beer’s net profit to grow at a five-year CAGR of 21.3% through 2026. We believe the firm is on the right track to enhance its brand awareness and strengthen distribution channels to support higher growth in premium products, and we expect CR Beer to expand its sales volume mix in premium offerings to 35% of total sales volume in 2026, up from 17% presently.

China Resources Beer, or CR Beer, formerly known as China Resources Enterprise, disposed of all of its nonbeer businesses in September 2015 to become a pure beer company. Through a series of mergers and acquisitions, the company retains its leadership position in China’s beer industry, with market share by sales volume expanding from 18% in 2008 to 33% in 2020, versus 23% for Tsingtao, 18% for ABI China, and 10% for Yanjing. Like its rivals, CR Beer enjoyed prolonged growth of sales volume and revenue in its beer business before 2013, owing to a series of economic and industry tailwinds during that period.

We maintain our fair value estimate for Tsingtao Brewery at HKD 68.00 per share, despite a slightly weak fourth-quarter result. Helped by CNY 436 million land sales income, Tsingtao’s full-year preliminary net profit rose 43% year over year to CNY 3.2 billion, which implies a recurring net loss of CNY 1 billion in the fourth quarter. The loss was expanded from negative CNY 777 million a year ago and it is slightly below our expected CNY 871 million. We think extreme weather conditions and continued social restrictions resulting from a few small, cluster of coronavirus outbreaks in some mainland cities should have weighed on fourth-quarter sales, and cost inflation further dampened margins.