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Stock Analyst Note

Narrow-moat China Resources Beer’s interim results trailed our estimates due to soft volume and price growth. We cut our 2024 revenue and net income projections by 3% and 5%, respectively, but our 2025-28 forecasts are largely unchanged. Hence, we retain our fair value estimate at HKD 45 per share, implying 25 times 2024 price/earnings, 14 times enterprise value/EBITDA, and 1.8% dividend yield. Shares are undervalued currently, but our top sector pick is Budweiser APAC—we think the latter is better poised to benefit from the long-term premiumization trend in China’s beer market.
Company Report

China Resources Beer has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

We expect soft demand in the low-end segment to weigh on narrow-moat China Resources Beer’s sales during the first half. We also slightly reduced our 2024 gross margin estimate by 60 basis points to account for operating deleverage. We keep our sales and marketing expenses ratio forecasts, leading to a 4% cut in our 2024 net income projection to CNY 5.77 billion. However, we leave our long-term forecasts largely unchanged. The subpremium beer portfolio has continued to outperform low-end products despite economic headwinds, suggesting the premiumization trend in the sector remains intact. We retain our fair value estimate of HKD 45 per share, which implies 25 times 2024 P/E, 14 times enterprise value/EBITDA, and a 1.7% dividend yield. We see shares as undervalued as the current share price should have largely reflected concerns over near-term earnings headwinds. That said, our preferred pick for the sector is Budweiser APAC, which is trading at the deepest discount to our fair value estimate. We expect the firm to be the major beneficiary of the premiumization trend in China over the long term.
Company Report

China Resources Beer has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

Narrow-moat China Resources Beer, or CR Beer, reported full-year 2023 results that exceeded our estimate on net profit but missed on the top line. While beer volume growth was below our projection, price/kiloliter came in better than expected. The subpremium beer portfolio continued to drive improvement in profit/kiloliter for the company. CR Beer’s baijiu segment results also highlighted the focus on lowering channel inventories and maintaining price stability in 2023. Although we reduce our five-year revenue compound annual growth rate by 2 percentage points to 7% to factor in lower beer pricing and baijiu sales, we retain our net income projections as we anticipate better cost savings from the synergies of the beer and baijiu businesses. We like the execution on consolidating Jinsha Winery thus far and view management’s strategies constructively.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

We lower our 2023 and 2024 earnings projections for narrow-moat China Resources Beer, or CR Beer, to below Refinitiv consensus, given sluggish demand and potential inventory issues that we think could hurt 2024 sales. We cut our fair value estimate to HKD 45 from HKD 55 per share as a result. The company’s recent share price correction likely reflects heightened concerns about near-term earnings. We reiterate our long-term view that CR Beer’s premium portfolio could be less competitive compared with Budweiser APAC. Valuations for major beer brewers have retreated to single-digit forward EV/EBITDA, below the 10-year historical average in the midteens range. Although shares are undervalued, we recognize there are risks to the industry premiumization trend due to weak consumer confidence. We continue to prefer Tsingtao Brewery due to its regional focus and more appropriate product pricing that fits the current consumption environment. We think near-term sentiment for CR Beer could continue to be suppressed.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business focus to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

Narrow-moat China Resources Beer delivered first-half results that slightly outpaced our estimates and largely met Refinitiv's consensus. Although the firm delivered 20% EBIT growth, the share price still reacted negatively likely due to the slight miss in price growth for beer. We reduce our 2023 price growth and net profit estimate to account for weaker third-quarter sales and an unfavorable mix for the beer segment in the second half. We currently assume price growth would rebound in 2024 as broader consumption improves, but we retain our longer-term view that CR Beer’s premium segment volume growth would slow from 2025 onward.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

Narrow-moat China Resources Beer, or CR Beer, reported 2022 results that met our below-consensus estimates on revenue, but exceeded our estimates on net profit. Better-than-expected cost-savings drove the bottom line beat in 2022. Management remained upbeat on a beer revenue and profit rebound in 2023, consistent with our expectations. The company also shared its view on the recently acquired baijiu business, which we would sum up as constructive on the long term, but requires patience in the near term. We have raised our 2023 sales and profit estimates on a better beer segment outlook, but left our fair value estimate unchanged at HKD 58 per share, which implies 16 times 2023 enterprise value/EBITDA. We think its share price is fairly valued, though in the near term, the market could view the stock as benefiting from the rebound in consumption in China, therefore driving short-term momentum.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

Narrow-moat China Resources Beer, or CR Beer, completed its acquisition of 55.19% equity interest in Guizhou Jinsha Winery on Jan. 10. We spoke with management recently and see minimal profit increment to CR Beer this year given the less favorable product mix of Jinsha and interest expense arising from the acquisition. But we lift our medium-term top-line and net profit estimates through 2026 by 2 and 6 percentage points, respectively. In our view, this acquisition could add another sales and profit growth driver for CR Beer over the long term. The company’s expertise in alcoholic beverage distribution and operational management could help Jinsha outcompete other smaller baijiu brands as the industry continues to consolidate. We moderately increased our stage II EBI growth forecasts with the expectation of better synergies following this acquisition. With the long-term assumptions and foreign exchange adjustment, we raise our fair value estimate to HKD 58 (from HKD 52), which implies 16 times 2023 EV/EBITDA and 32 times 2023 P/E, broadly in line with its 10-year historical average. We think the recent bullish sentiment for the stock has largely priced in a 2023 earnings rebound due to reopening and thus we see its shares as fairly valued at the current price.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

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.
Company Report

China Resources Beer, or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

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.
Company Report

China Resources Beer. or CR Beer, has the largest volume share in China’s beer market in 2021 and its Snow brand commands over 20% share according to Euromonitor. This has been enabled by decades of acquisitions of breweries and local brands by CR Beer just as Chinese beer volume was taking off. While rapid expansion has helped attain its leadership position, it also created issues like overcapacity, redundant workforce, and inefficient management of a vast number of local brands. As sales volume in the China beer market peaked in 2013, brewers had to transition their business strategies to profit growth. In response, CR Beer has taken steps to reduce headcount, improve utilization, and consolidate production lines in order to achieve higher efficiencies in sales and marketing on a nationwide basis.
Stock Analyst Note

No-moat China Resources Beer’s, or CR Beer’s, first-half results delivered no major surprises. Revenue growth was in line with expectations, while the decent 17% year-over-year adjusted EBIT growth (excluding one-offs) beat our estimates slightly, owing to lower sales and marketing expenses amid widespread lockdowns in the half-year. Management made little change to its full-year sales and marketing plans, and we believe spending will catch up in coming quarters, as COVID-19 lockdowns ease. As such, we maintain both our fair value estimate of HKD 52 per share, and full-year net profit forecast of CNY 4.2 billion, which implies an accelerating sales growth in the second half. And we think pent-up demand for socializing (coinciding with a hotter summer), a solid premiumization trend, and a slightly weakened cost outlook, are pointing to an improved second-half performance. We think the shares are fairly valued presently, with the current 20 times 2022 EV/EBITDA as of Aug. 17, up from the 16 times as of the end of June, appropriately reflecting an improvement from the first-half environment.

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