Bank of China Securities: If the trend of upgrading the product structure of beer companies does not change, cost dividends are expected to continue to be released, and suggestions are actively laid out

The Zhitong Finance App learned that BOC Securities released a research report stating that the beer industry continues to upgrade its structure in 2023, with a slight increase in sales volume, strong cost pressure, steady expenditure investment, and a continuous rise in net interest rates to mother. The increase in tonnage prices in the 1Q24 beer industry narrowed, cost dividends were released as scheduled, and profit levels increased at an accelerated pace. The team anticipates that the pace of performance of beer companies will be low and high in 2024, and cost dividends are expected to continue to be released, and suggests an active layout. We recommend Tsingtao Brewery, which is steady and far-reaching, and recommend focusing on Yanjing Brewery, which is actively promoting reforms.

Key points supporting the rating:

The structural upgrade trend continued in 2023, with a slight increase in sales volume. The total main business revenue of the six major beer companies in 2023 was 153.8 billion yuan, +6.3% over the same period last year. Divided by volume and price: 1) In terms of volume, the six major beer companies sold a total of 36.78 million kiloliters, +2.2% over the same period last year. Among them, China Resources Beer, Budweiser Asia Pacific, Qingdao Beer, Chongqing Beer, Yanjing Beer, and Pearl River Beer had sales of +0.5%/4.6%/-0.8%/+4.9%/+4.6%/+4.8%, respectively. Beer sales rose slightly in 2023 as ready-to-drink channels were repaired. 2) In terms of price, the average tonnage price of the six major beer companies was 4,182 yuan, +4.0% year-on-year. Among them, the tonnage prices of China Resources Beer, Budweiser Asia Pacific, Tsingtao Brewery, Chongqing Beer, Yanjing Beer, Pearl River Beer were +4.0%/+6.2% (endogenous)/+6.3%/+0.6%/+3.0%/+4.1%, respectively. By product, according to information disclosed in each company's annual reports and performance briefings, sales volume of Tsing Beer's main brand products was +2.7% to 4.56 million kiloliters; sales volume of the Yanjing U8 single product was +36% to 530,000 kiloliters, and China Resources Heineken's sales volume exceeded 60 kiloliters. Driven by the continued release of medium- to high-priced products, major beer companies' tonnage prices continued to rise.

In 2023, cost pressure was strong, and expenditure investment was steady, and the net interest rate to mother was +0.9 pct year over year. 1) On the cost side, due to the continued rise in raw material prices, the average tonnage cost of the six major beer companies in 2023 was +2.3% to 2,351 yuan. Although cost pressure is high, the gross margin of the beer sector in 2023 was +0.8pct to 40.8% year-on-year, driven by structural upgrades. 2) On the cost side, the sales and management expenses ratio for the beer sector was +0.3/+0.1pct to 14.0%/6.0%, respectively, in 2023. There was no significant increase in sales expenses, indicating that the intensity of competition in the industry is stable and manageable. The management fee rate has generally remained stable. 3) At the profit level, driven by structural upgrades, the net profit margin on sales in the beer sector in 2023 was +0.9 pct compared to the same period last year to 12.3%.

The 1Q24 tonnage increase narrowed, cost dividends were released as scheduled, and profit levels increased at an accelerated pace. Major beer companies that disclosed financial reports had 1Q24 revenue -0.4% year-on-year, and volume/price -4.1%/+3.5%, respectively. We expect that under the cost dividend, wine companies will need to transfer part of their profits to dealers in the form of a discount, so the 1Q24 tonne price growth rate will be narrower than in 2023. Due to the high base for the same period in 2023, beer companies' 1Q24 sales declined year-on-year. On the cost side, with the abolition of anti-taxation in Australia and the continuous optimization of production capacity and personnel, the cost per ton of major beer companies was +0.2% year-on-year. The increase was significantly narrower than in 2023, and the gross margin of the beer sector was +2.0pct year-on-year. On the cost side, the 1Q24 sales/management expense ratio in the beer sector was -0.5/+0.3 pct year on year, respectively. We determined that the year-on-year decline in the 1Q24 beer sector sales expenses rate was due to differences in the pace of cost investment, and it is expected that the sales expense ratio will remain stable throughout the year. At the profit level, driven by structural upgrades and cost dividends, the beer sector's net sales margin in 1Q24 was +2.2 pct year-on-year, and the increase was significantly better than in 2023.

Investment advice

The pace of performance of beer companies is expected to be low and high in 2024, and cost dividends are expected to continue to be released. Active layout is recommended. Since demand expectations after the outbreak of the epidemic were too optimistic in early 2023, beer companies generally stocked large quantities in 1H23 and removed channel inventory in 2H23, forming a high performance base from before and after. It is expected that in the second half of 2024, with the arrival of a low performance base and the continued release of cost dividends, the performance of beer companies will accelerate, and an active layout is recommended. We recommend Tsingtao Brewery, which is steady and far-reaching, and recommend focusing on Yanjing Brewery, which is actively promoting reforms.

Key risks faced

Fluctuations in raw material prices, sharp deceleration of the structural upgrade process, and food safety risks.