Brewers to See Brighter Outlook in 2023; Budweiser APAC Stands to Benefit the Most

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.