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Budweiser APAC Earnings: Soft Volume Was a Drag, but Mitigated by Resilient Price Growth

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Narrow-moat Budweiser 01876 APAC’s third-quarter results moderately trailed our estimates on sales and profit, due to lower volume in China and adverse operating environment in S. Korea. Price growth in China remained resilient, however, indicating continued premiumization of its product portfolio. We think near-term share price momentum is affected by investors’ concern on consumer trade down in China. Competition in S. Korea is another headwind. But we see shares as undervalued since Budweiser APAC has solid distribution strength and channel management tools in identifying premiumization opportunities over the long term. Cost pressure in 2024 should also ease with lower input prices. We moderately reduce our fair value estimate at HKD 21 per share from HKD 22 per share, which implies 30 times 2024 price/earnings and 14 times EV/EBITDA.

Organic revenue growth of 7.1% year on year was mainly driven by price growth in China, which also exceeded our projection. Strength in the Budweiser brand and other super-premium lineups with geographic and channel expansion drove the mix shift. We think the BEES platform played a key part in this process, as the digital tool already accounted for 65% of China’s revenue in September.

Korea continued to be a headwind, due to soft consumer sentiment and share gains by Japanese imported beer. The company only started raising prices in October, where price/hectoliter fell 1.9% in third quarter. Volume decline was slightly steeper than our estimates, but we expect price growth to improve in the fourth quarter as price hikes of the company and its competitors kick in.

We moderately trim our organic sales growth estimates from 11.6% year on year to 11.0%, due to softer volume across China and S. Korea. Weaker CNY against USD and higher operating expenses also lower our revenue and profit estimates for 2023 and 2024. We expect commodity prices to become more favorable in 2024 as aluminum and barley prices stabilize.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Jacky Tsang

Equity Analyst
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Jacky Tsang is an equity analyst for Morningstar Asia Limited, a wholly owned subsidiary of Morningstar, Inc. He covers the Greater China consumer defensive sector, which includes packaged food, home care, food retail, and personal products companies.

Before joining Morningstar, Tsang was the research lead at GfK, where he covered a variety of listed companies, notably in the consumer durables and electronics sectors across the Asia-Pacific region. He has presented as an industry expert at various sell-side investor conferences. He also worked previously with Coleman Research, where he conducted primary industry research and helped generate leads for clients seeking channel checks.

Tsang holds a bachelor's degree (first class) in English studies from The Hong Kong Polytechnic University.

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