Budweiser APAC: Headwinds in China Dragged Earnings; Fair Value Estimate Unchanged

Narrow-moat Budweiser APAC's second-quarter earnings trailed our estimates, dragged by soft top-line trends in China. We lowered our 2024 revenue and net income estimates by 3% and 7%, respectively, but left our longer-term forecasts largely unchanged. The sharper revision in earnings is due to lower gross margin in the first half as a result of operating deleverage. However, the near-term demand weakness does not change our long-term constructive view on the company. We retain our fair value estimate at HKD 17.50, which implies 31 times 2024 price/earnings, 12 times EV/EBITDA and 2.4% dividend yield. Budweiser APAC remains our top pick among Chinese brewers thanks to its channel management capabilities and competitive premium portfolio, which should help it outperform peers in the long-term premiumization trend.