Chinese Regional Beer Breweries to Face Near-Term Volume Headwinds

We review our assumptions for both narrow-moat-rated Chongqing Brewery and Tsingtao Brewery before the release of their second-quarter results. We lowered our 2024 revenue growth projection for Chongqing Brewery by 4% due to slower volume growth estimate for the second quarter. Forecast gross margin for the year was also reduced by 1.3 percentage points to 48.9%, as we expect the company’s premium beer sales growth in 2024 to be weaker than our previous assumption. Consequently, our 2024 net profit forecast is cut by 9%. However, we retain our forecasts for Tsingtao Brewery as we already had incorporated a more conservative outlook for its 2024 sales volume in our model. Our longer-term forecasts for both companies are largely unchanged, as we expect the ongoing premiumization trend to continue to drive recovery in the Chinese beer industry.