Domestic Brewers Such as CR Beer and Tsingtao to Benefit From Temporary Slowdown in Trade Up

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.