Tsingtao Earnings: Sales and Profit Beat; Operating Environment to Be Favorable in 2023

Narrow-moat Tsingtao Brewery 600600 reported first-quarter results that exceeded our estimates on the top line and net profit, thanks to resilient volume growth, price/mix improvement and cost controls. We left our 2023 sales and profit forecasts unchanged and, with the base effect, we expect the earnings growth rate to slow through the rest of this year. We maintain our fair value estimate at HKD 80 per share. Our fair value estimate implies 12 times 2023 enterprise value/EBITDA and 24 times 2023 P/E, moderately below its 10-year average. We think the stock could be viewed positively in the near term thanks to effective channel execution and a favorable operating environment. We believe beer brewers will embrace a more resilient demand environment in first-half 2023 versus other staples companies in China due to higher certainty in catering demand.