Company Reports

Tsingtao Brewery has over 100 years of history and is the third largest beer brewery by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and net profit in 2022.

Narrow-moat Tsingtao Brewery’s second-quarter results trailed our revenue and net profit estimates, primarily due to volume headwinds. On a positive note, gross profit per ton beat our expectations and grew 6% year on year, driven by lower input costs. Hence, net income only missed our estimates by 5% despite the 10% miss in revenue. We left our 2024 net income projection largely unchanged as volume weakness was offset by a better margin. However, we reduce 2025-28 earnings projections by 3%-4% due to lower volume growth assumptions.

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.

Narrow-moat Tsingtao Brewery’s first-quarter results were decent with net profit growing 10% year on year despite a 5% decline in revenue, thanks to gross margin expansion and lower operating expenses. This is consistent with our constructive view on Tsingtao’s ability to achieve cost-savings in times of an adverse industry environment. Although we cut our 2024 revenue estimate moderately by 2 percentage points to incorporate the recent trend, we also raised the net margin forecast by 30 basis point to factor in the better cost savings. This leaves our 2024 net income estimate largely unchanged. We retain our fair value estimate at HKD 78 per H-share (CNY 72 per A-share), which implies 22 times 2024 price/earnings, 11 times EV/EBITDA, and 2.8% dividend yield. We continue to see Tsingtao Brewery as a quality name in the sector and its H-shares as undervalued.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewery by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and net profit in 2022.

Narrow-moat Tsingtao Brewery reported 2023 results that fractionally trailed our estimates, due to lower volume sales and higher selling expenses. Gross margin, however, beat our expectations. Price growth in 2023 was driven by core regions in Northern China, consistent with our view that the company has stronger levers to improve the product mix in its core regions due to its dominant market position. We lowered our volume growth expectations but raised our price/ton estimates through the explicit forecast period, resulting in a minor earnings cut of less than 3% through 2028. We retain our fair value estimate at HKD 78 per H-share (CNY 72 per A-share), which implies 22 times 2024 price/earnings, 11 times EV/EBITDA, and 3% dividend yield. While investors could be concerned about volume momentum slowing in the near term, we think the company’s distribution strength in its core regions remains intact. We see shares as undervalued at the current price.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewery by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and net profit in 2022.

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.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewery by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and net profit in 2022.

Narrow-moat Tsingtao Brewery posted another set of quarterly earnings that exceeded Refinitiv consensus, thanks to improving product mix and control in operating expenses. Net income rose 18% year on year. Volume growth moderately outperformed our estimates due to premium segment strength. We raise our sales and net profit projections for the year to account for better volume and operating cost control. We expect the base effect to weigh on second-half results, but view positively the company’s ability to drive product mix and navigate the bumpy operating environment.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewery by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and net profit in 2022.

Narrow-moat Tsingtao Brewery reported first-quarter results that exceeded our estimates on the top line and net profit, thanks to resilient volume growth, price/mix improvement and cost controls. We left our 2023 sales and profit forecasts unchanged and, with the base effect, we expect the earnings growth rate to slow through the rest of this year. We maintain our fair value estimate at HKD 80 per share. Our fair value estimate implies 12 times 2023 enterprise value/EBITDA and 24 times 2023 P/E, moderately below its 10-year average. We think the stock could be viewed positively in the near term thanks to effective channel execution and a favorable operating environment. We believe beer brewers will embrace a more resilient demand environment in first-half 2023 versus other staples companies in China due to higher certainty in catering demand.

Narrow-moat Tsingtao Brewery reported results for 2022 in which the top line met market expectations and the bottom line beat Refinitiv consensus. Gross margin grew moderately year on year despite the higher cost environment, as the company was able to deliver price/mix growth. We lift our fair value estimate to HKD 80 from HKD 74 as we raise our medium-term net margin estimates on better execution in cost control. Our fair value estimate implies 12 times 2023 EV/EBITDA, moderately below the 10-year average of 14 times. We think Tsingtao Brewery’s share price could enjoy near-term momentum as the company demonstrates the ability to control cost and deliver price/mix growth, but we regard the shares as being fairly valued. We reiterate our view that consumers are willing to spend on catering services after the lifting of pandemic restrictions, a tailwind for premium beer demand.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewer by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favorable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and more than half of its net profit.

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.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewer by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favourable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and more than half of its net profit.

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.

Tsingtao Brewery has over 100 years of history and is the second largest beer brewer by volume in China. With its roots in Shandong, the largest beer consumption province in China, Tsingtao has demonstrated the favourable economics of regional concentration, with production facilities achieving scale efficiencies through a dense distribution network. Shandong province alone contributed over 60% of Tsingtao Brewery’s revenue and more than half of its net profit.

Narrow-moat Tsingtao Brewery reported third-quarter results with revenue in line but net profit slightly trailing PitchBook consensus estimates. Earnings showed a temporary recovery in demand during peak summer season, though trading down occurred and faster growth in mass-market beer weighed on growth. As a result, the company struggled to increase gross profits at a pace comparable with the top line. But Tsingtao was able to control selling expenses to achieve year-on-year improvement in net profit margin. We have left our 2022 net profit estimates broadly unchanged, but potential on-trade disruptions weaken our 2023 outlook. We see lockdowns as a key overhang for the company over the next few quarters, as volume growth and price/mix of the Tsingtao brand lineup could be adversely affected. Assuming a softer profit outlook, we have lowered our fair value estimate to HKD 69 per share from HKD 72. Our fair value estimate implies 12 times 2023 enterprise value/EBITDA, slightly below the company’s 10-year historical average of 14 times, and 25 times 2023 forward price/earnings. We think higher visibility on the growth outlook for the core Tsingtao brand would be a key catalyst for the share price.

As China's most distinguished beer brand, Tsingtao saw prolonged prosperity before 2014, owing to a series of economic and industry tailwinds. The company reported high-single-digit or double-digit growth in sales volume and revenue during this period. However, after that, Tsingtao and its rivals began to face downward pressure from numerous headwinds, including the sluggish economy, weak consumer sentiment, unfavorable demographic structure, market share expansion for baijiu and wine, and competition from overseas brands, as well as stagnant growth for beer consumption per capita.