Tsingtao Brewery Earnings: Volume Dragged Results but Margins Improved on Better Mix

Narrow-moat Tsingtao Brewery's third-quarter earnings missed our estimates on revenue and net profit. Sales declined year on year but gross and net profit still grew modestly, as margins benefited from positive mix and cost control. We fractionally reduce our 2023 revenue and net income forecasts as a result. We also lower our fair value estimate to HKD 78 per H-share (CNY 73 per A-share) from HKD 80/CNY 74 due to currency headwinds. Tsingtao’s share price has rebounded from a selloff last week following a viral video showing product sabotage that reflects safety issues. Based on company disclosure, we do not think the event should significantly affect Tsingtao’s sales, with the company expected to address safety lapses. Tsingtao’s H-shares are relatively attractive at the current price.