china / hong kong industry focus china brewery sector
TRANSCRIPT
ed-KK/ sa-CS / AH
Time to raise your glasses
• Top pick BUD APAC (1876.HK) for its strong recovery
potential on very low comps and intact premiumisation
growth • Time to revisit CR Beer (291.HK) given better visibility
of on-trade channel recovery and premiumisation
growth. Upgrade to BUY
• Positives of margin upticks priced in for Tsingtao
Brewery, maintain HOLD/FULLY VALUED for H
(168.HK)/A (600600.CH)
Top pick BUD APAC: Expect recovery with very low comps
Despite short-term setbacks in South Korea due to resurgence
of COVID-19 cases in 3Q20, BUD APAC’s volume has seen
decent sequential improvement along with premiumisation
growth intact (premium beer saw high-single-digit volume
growth in 3Q20 in China). Going forward, we expect BUD
APAC to see a 26% EBITDA CAGR in FY20-22F from a very
low base. Its higher sales exposure in on-premise channel may
also turn into strength (was a drag in 2020) as the pandemic
impact fades in the medium term. We believe that BUD APAC
still has M&A potential in the Southeast Asia in the longer
term.
CR Beer: Time to revisit, upgrade to BUY with unchanged TP of
HK$58. Since we downgraded CR Beer to HOLD on 20 August,
its share price has continued to stay under the HK$54 level,
underperforming the market. We expect CR Beer should
achieve mid-single-digit sales growth in 3Q20E on improving
product mix, and we believe now could be a better entry point
given higher visibility of on-trade channel recovery and
premiumisation growth of its Heineken products (strong
double-digit growth YTD). Going forward, we are also positive
about its margin improvement with its ongoing capacity
optimisation exercise and we expect its adjusted EBITDA
margin to achieve 24% by 2020F (vs. 15% in FY19).
Maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H.
Tsingtao Brewery has showcased its resilience against the
pandemic and delivered decent 3Q20 results on improved
profitability. The counter (H-share) is currently trading at c.14x
FY21F EV/EBITDA, more than 1SD above its 3-year H-share
average, which has factored in the company’s improving
profitability and resilient sale volume growth in our view. We
maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H on
rich valuation.
HSI: 26,016
ANALYST
Vincent YANG +852 36684197 [email protected]
Mavis HUI +852 36684188 [email protected]
Recommendation & valuation
Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)
Target Mkt PE
Company Name Cur Price Price Recom Cap 21F
Local$ Local$ US$m x
Budweiser Brewing Co.
(1876 HK)HKD 22.75 29.16 BUY 38,858 33.1
China Resources Beer
(291 HK)HKD 50.85 58.03 BUY 21,276 38.3
Tsingtao Brewery 'H'
(168 HK)HKD 64.20 69.71 HOLD 14,156 27.6
Tsingtao Brewery 'A'
(600600 CH)CNY 81.43 63.37 FV 14,156 41.0
DBS Group Research . Equity
China / Hong Kong Industry Focus
China Brewery Sector
10 Nov 2020
Refer to important disclosures at the end of this report
Industry Focus
China Brewery Sector
Page 2
While CR Beer doesn’t announce its quarterly preperformance,
BUD APAC and Tsingtao Brewery have released their 3Q20
results earlier with key takeaways as follows:
BUD APAC
BUD APAC’s 3Q20 results were largely in line with market
expectations. On the group level, organic revenue grew by
2.2% to US$1.8bn on 1% volume growth and 1.2% average
selling price (ASP) increase, driven by improving channel mix
and ongoing premiumisation in China. Organic normalised
EBITDA remained flattish while normalised net earnings
increased to US$320m in 3Q20 (vs. US$310m in 3Q19).
Sales recovery on track in China. In APAC West (mostly China),
sales grew by 1.9% due to 1.1% volume increase and 0.8%
ASP hike in 3Q20, while normalised EBITDA edged up by 3.5%
(vs. 16% decline in 9M20). BUD APAC saw 4.8% revenue
growth in 3Q20 on 3.1% volume growth and 1.6% ASP
increase, with high-single-digit volume growth for premium
products and strong double-digit growth for its super premium
beer portfolio. As of September, over 90% of BUD APAC’s
nightlife channel points of sales had reopened in China. Going
forward, we expect the APAC West region to see significant
volume growth in FY21F on very low comps and revenue
should hit FY19 levels (US$5.2bn) or even higher, supported by
the continuous trend of premiumisation.
Short-term challenges in S. Korea due to fluctuation of COVID-
19 cases. In APAC East (mostly South Korea), sales grew by
3.3% mostly due to ASP increase in 3Q20. Sales volume has
remained largely flattish due to another COVID-19 outbreak in
mid-August in Korea, despite low comps. Normalised EBITDA
declined by 13.1% in 3Q20. While BUD APAC still remains the
market leader in South Korea, especially in the restaurant
channel via the Cass brand, we understand that given the
changing channel mix during the pandemic, BUD APAC’s
market share has declined YoY and QoQ in South Korea. We
are turning more positive about its growth recovery in the
South Korea market given its continuous investment in
branding and potential ease of COVID-19 cases in the medium
term with the help of vaccines. We expect BUD APAC to
achieve low-teens sales growth in FY21F mainly on volume
recovery.
BUD APAC remains our top pick on 1) strong recovery
potential on low comps, 2) ongoing premiumisation growth in
both China and South Korea, 3) potential M&A opportunities
in SEA. We have lowered our normalised FY20F/21F/22F
EBITDA by 6%/ 8%/ 8% on slower recovery in South Korea in
3Q20. Our sum-of-the-the-parts (SOTP)-based TP of HK$29.16
is based on APAC West (mostly China) being valued at
unchanged 23x FY21F EV/EBITDA and APAC East (mainly South
Korea) at an unchanged 15x FY21F EV/EBITDA.
CR Beer
Expect 3Q20E to achieve mid-single-digit sales growth. Despite
temporary volume disruption during July and August in some
of its base markets such as Sichuan and Anhui due to
unfavourable weather and floods, we believe CR Beer should
still achieve mid-single-digit sales growth in 3Q20E, supported
by ongoing product mix improvement. We understand that CR
Beer’s flagship premium product Heineken Silver has been
well-received among consumers, as well as its upper mid-range
product SuperX. We expect its premium beer sales volume
should sustain strong double-digit growth YTD.
Upgrade to BUY with unchanged TP of HK$58. Since we
downgraded the counter to HOLD on 20 August, its share
price has continued to stay under the HK$54 level,
underperforming the market. Given the better visibility of on-
premise channel sales recovery in FY21F as well as its strong
premium beer sales growth, we are turning more positive
about its near-term share price performance. Going forward,
we also expect the company to achieve remarkable margin
improvement thanks to its continuous capacity optimisation
exercise. We estimate the company’s adjusted EBITDA margin
should arrive at 24% by FY22F vs. 15% in FY19.
Tsingtao Brewery
Decent 3Q20 results on improved GP margin. Similar to BUD
APAC’s performance in China, Tsingtao Brewery’s 3Q20
revenue also grew by 4.8%, thanks to 3.0% volume growth
and 1.8% ASP hike. Thanks to its like-for-like price hike for
some of its products in major markets as well as soft raw
material prices, its GP margin improved by 2ppt to 42.4%. Its
SG&A expense/Revenue ratio also improved by 0.6ppt mainly
on better management of marketing expenses.
Net losses expected to narrow compared to 4Q19. Given
typically low seasons in 4Q and relatively high fixed costs and
promotional expenses for its distributors, Tsingtao Brewery
normally incurs losses in 4Q. We believe the company is likely
to narrow its net losses to slightly over RMB600m (vs.
RMB734m losses in 4Q19), given improved GP margin and
allocation of marketing expenses.
Industry Focus
China Brewery Sector
Page 3
Maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H. We
raise Tsingtao Brewery’s FY20F/21F/22F EBITDA by 32%/ 21%/
16% to factor in the like-for-like price hike in Tsingtao
Brewery’s base markets in 3Q20. Our new TP of HK$69.7
(RMB63.4) is pegged to 16x FY21F EV/EBITDA (1 SD above its
3-year A-share average, previously 14x FY21F EV/EBITDA).
Budweiser Brewing APAC (1876 HK) –EV/EBITDA band
CR Beer (291 HK) – Adjusted EV/EBITDA band
Tsingtao Brewery (168 HK) –EV/EBITDA band
Tsingtao Brewery (600600 CH) –EV/EBITDA band
Source: Thomson Reuters, DBS HK
15
20
25
30
35
40
45
Sep-1
9
Oct
-19
Nov-
19
Dec
-19
Jan-2
0
Feb-2
0
Mar-
20
Apr-
20
May-
20
Jun-2
0
Jul-20
Aug-2
0
Sep-2
0
Oct
-20
Share Price (HK$)
16.8x
20.5x
24.2x
27.9x
31.6x
0
10
20
30
40
50
60
70
Dec
-16
Mar-
17
May-
17
Aug-1
7O
ct-1
7Ja
n-1
8M
ar-
18
Jun-1
8A
ug-1
8N
ov-
18
Jan-1
9A
pr-
19
Jul-19
Sep-1
9D
ec-1
9Fe
b-2
0M
ay-
20
Jul-20
Oct
-20
Share Price (HK$)
9.4x
12.8x
16.2x
19.5x
22.9x
20
30
40
50
60
70
80
Jun-1
6
Sep-1
6D
ec-1
6M
ar-
17
Jun-1
7
Sep-1
7D
ec-1
7M
ar-
18
Jun-1
8
Sep-1
8D
ec-1
8M
ar-
19
Jun-1
9
Sep-1
9D
ec-1
9M
ar-
20
Jun-2
0
Sep-2
0
Share Price (HK$)
5.0x
8.1x
11.2x
14.3x
17.5x
0
10
20
30
40
50
60
70
80
Jun/1
7
Nov/
17
Apr/
18
Sep/1
8
Feb/1
9
Jul/19
Dec
/19
Share Price (HK$)
6.2x
10.3x
14.3x
18.4x
22.4x
Industry Focus
China Brewery Sector
Page 4
Peers valuation
# FY20: FY21; FY21: FY22
Source: Thomson Reuters, *DBS HK
Target Mkt PE PE P/Bk P/Bk ROE ROE
Price Price Cap 20F 21F 20F 21F 20F 21F 20F 21F
Company Name Code Cur Local$ Local$ US$m x x x x x x % %
China
A -share listed
Beijing Yanjing Brew.'A' 000729 CH CNY 8.15 n.a. 3,474 107.2 79.9 1.7 1.7 19.0 16.6 1.6 2.0
Chongqing Brew.'A' 600132 CH CNY 105.58 n.a. 7,727 92.2 80.7 33.5 28.4 61.6 55.4 39.6 40.8
Tsingtao Brewery 'A'* 600600 CH CNY 81.43 63.37 14,156 46.9 41.0 5.0 4.4 26.7 22.4 11.2 11.4
A v erage 82.1 67.2 13.4 11.5 35.8 31.5 17.5 18.1
Hong Kong listed
Budweiser Brewing Co.* 1876 HK HKD 22.75 29.16 38,858 55.3 33.1 3.8 3.5 23.1 16.7 7.0 10.9
China Resources Beer* 291 HK HKD 50.85 58.03 21,276 57.0 38.3 6.4 5.8 27.3 21.5 11.3 15.9
Tsingtao Brewery 'H'* 168 HK HKD 64.20 69.71 14,156 31.5 27.6 3.3 3.0 16.1 13.3 11.2 11.4
A v erage 47.9 33.0 4.5 4.1 21.7 17.4 9.8 12.8
SEA
Carlsberg Brewery Mal. CAB MK MYR 19.76 n.a. 1,463 30.0 22.6 29.2 27.6 19.3 15.1 120.6 143.5
Heineken Malaysia HEIM MK MYR 19.00 n.a. 1,390 29.5 19.9 13.1 12.7 17.4 12.9 47.8 68.3
San Miguel F&B FB PM PHP 63.95 n.a. 7,855 33.5 26.0 4.2 3.9 11.0 9.2 12.6 16.4
Thai Beverage Public THBEV SP SGD 0.64 n.a. 11,919 16.0 14.5 2.9 2.6 14.8 13.6 18.9 19.4
A v erage 27.3 20.7 12.3 11.7 15.6 12.7 50.0 61.9
Other dev eloped A sian markets
Asahi Group Holdings 2502 JP JPY 3690 n.a. 18,011 21.3 13.1 1.3 1.2 12.9 9.6 6.3 9.7
Kirin Holdings 2503 JP JPY 2094 n.a. 18,519 23.0 15.7 2.1 2.0 9.8 7.9 8.9 12.7
Sapporo Holdings 2501 JP JPY 1904 n.a. 1,452 n.a. 56.7 0.9 0.9 14.4 11.6 (2.7) 1.2
Hitejinro 000080 KS KRW 34650 n.a. 2,204 21.9 18.9 2.2 2.1 8.8 8.2 10.4 11.5
A v erage 22.0 26.1 1.6 1.5 11.5 9.3 5.7 8.8
Mult inat ional Companies
Anheuser-Busch Inbev ABI BB EUR 53.1 n.a. 127,311 28.6 19.7 1.6 1.5 12.2 11.2 4.6 8.3
Carlsberg B CARLB DC DKK 917.80 n.a. 21,586 23.2 20.5 3.1 3.0 11.5 10.6 13.7 14.9
Pernod-Ricard RI FP EUR 158.45 n.a. 49,269 126.6 29.2 3.0 2.8 34.9 18.1 2.2 9.9
Boston Beer 'A' SAM US USD 949.6 n.a. 11,626 61.4 42.1 12.2 9.9 33.9 23.1 22.5 26.2
Molson Coors Beverage TAP US USD 41.16 n.a. 8,919 9.7 9.8 0.6 0.6 6.8 6.8 6.1 6.1
A v erage 49.9 24.3 4.1 3.6 19.9 14.0 9.8 13.1
EV /EBITDA
Industry Focus
China Brewery Sector
Page 5
Budweiser Brewing Company APAC (1876 HK Equity, HK$22.75, BUY, Target Price 12-mth HK$ 29.16 (Prev. HK$31.68)) Forecast & Valuation General Data
FY Dec (US$ m) 2019A 2020F 2021F 2022F At A Glance
Issued Capital (m shrs) 13,243
Mkt Cap (HK$m/US$m) 301,278 / 38,858
Major Shareholders (%)
AB InBev Brewing Company Holdings
(APAC) Ltd. 87.2
Free Float (%) 12.8
3m Avg. Daily Val. (US$m) 25.46
GICS Industry: Consumer Goods / Beverages
Turnover 6,546 5,674 6,557 7,061 EBITDA 2,121 1,624 2,190 2,592 Pre-tax Profit 1,367 1,025 1,603 2,024 Net Profit 898 703 1,174 1,482 Net Pft (Pre Ex) (core profit) 996 723 1,194 1,502 Net Profit Gth (Pre-ex) (%) (0.4) (27.4) 65.2 25.8 EPS (US$) 0.07 0.05 0.09 0.11 EPS (HK$) 0.53 0.41 0.69 0.87 Core EPS (HK$) 0.58 0.42 0.70 0.88 Core EPS (US$) 0.08 0.05 0.09 0.11 EPS Gth (%) (6.3) (21.8) 67.0 26.2 Core EPS Gth (%) (0.4) (27.5) 65.2 25.8 Diluted EPS (HK$) 0.53 0.41 0.69 0.87 DPS (HK$) 0.20 0.14 0.24 0.30 BV Per Share (HK$) 6.37 6.06 6.52 7.10 PE (X) 43.2 55.3 33.1 26.2 Core PE (X) 38.9 53.7 32.5 25.9 P/Cash Flow (X) 28.1 28.3 20.1 18.4 P/Free CF (X) 50.5 47.7 28.3 25.1 EV/EBITDA (X) 18.0 23.1 16.7 13.7 Net Div Yield (%) 0.9 0.6 1.1 1.3 P/Book Value (X) 3.6 3.8 3.5 3.2 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 9.0 7.0 10.9 12.7 Earnings Rev (%): (7) (9) (9) Consensus EPS (US$) 0.05 0.09 0.10 Other Broker Recs: B:18 S:2 H:0 Income Statement (US$ m) Balance Sheet (US$ m)
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F
Turnover 6,546 5,674 6,557 7,061 Net Fixed Assets 3,638 3,625 3,627 3,629 Cost of Goods Sold (3,058) (2,660) (2,928) (3,015) Invts in Assocs & JVs 418 400 400 400 Gross Profit 3,488 3,014 3,629 4,045 Other LT Assets 9,144 9,101 9,035 8,972 Other Opg (Exp)/Inc (2,022) (2,004) (2,048) (2,061) Cash & ST Invts 992 1,406 2,419 3,497 Operating Profit 1,466 1,010 1,581 1,985 Inventory 438 364 369 380 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 652 497 539 580 Associates & JV Inc 23 28 30 33 Other Current Assets 26 12 12 12 Net Interest (Exp)/Inc (24) 7 12 25 Total Assets 15,308 15,406 16,401 17,471 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) (98) (20) (20) (20) ST Debt 235 100 100 100 Pre-tax Profit 1,367 1,025 1,603 2,024 Other Current Liab 4,258 4,003 4,205 4,283 Tax (459) (321) (428) (540) LT Debt 28 0 0 0 Minority Interest (10) (1) (1) (1) Other LT Liabilities 903 903 903 903 Preference Dividend 0 0 0 0 Shareholder’s Equity 9,836 10,352 11,143 12,134 Net Profit 898 703 1,174 1,482 Minority Interests 48 49 50 51 Net profit before Except. 996 723 1,194 1,502 Total Cap. & Liab. 15,308 15,406 16,401 17,471 EBITDA 2,121 1,624 2,190 2,592 Sales Gth (%) (2.9) (13.3) 15.6 7.7 Non-Cash Wkg. Cap (3,142) (3,129) (3,285) (3,310) EBITDA Gth (%) 6.4 (23.4) 34.8 18.3 Net Cash/(Debt) 729 1,306 2,319 3,397 Opg Profit Gth (%) 12.9 (31.1) 56.5 25.6 Effective Tax Rate (%) 33.6 31.3 26.7 26.7 Cash Flow Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F
Pre-Tax Profit 1,367 1,025 1,603 2,024 Revenues (US$ m) Dep. & Amort. 655 614 609 607 APAC East 1,370 1,171 1,302 1,373 Tax Paid (459) (321) (428) (540) APAC West 5,176 4,502 5,255 5,687 Assoc. & JV Inc/(loss) (7) (7) (7) (7) Total 6,546 5,674 6,557 7,061 (Pft)/ Loss on disposal of FAs
FAFAsiaries/Investments (-/+)
(105) 0 0 0 EBITDA (US$ m) Chg in Wkg.Cap. (209) 64 157 25 APAC East 446 327 430 491 Other Operating CF 137 (1) (1) (1) APAC West 1,675 1,298 1,760 2,101 Net Operating CF 1,379 1,374 1,933 2,107 Total 2,121 1,624 2,190 2,592 Capital Exp.(net) (611) (560) (560) (560) EBITDA Margins (%) Other Invts.(net) 0 0 0 0 APAC East 32.6 27.9 33.0 35.8 Invts in Assoc. & JV (185) 0 0 0 APAC West 32.4 28.8 33.5 36.9 Div from Assoc & JV 0 0 0 0 32.4 28.6 33.4 36.7 Other Investing CF 103 50 50 50 Key Assumptions Net Investing CF (693) (510) (510) (510) Organic volume growth of APAC East (7.2) (8.1) 9.0 3.0 Div Paid (976) (247) (411) (519) Organic volume growth of APAC West (2.3) (11.3) 11.0 3.0 Chg in Gross Debt 68 (88) 0 0 Organic ASP growth of APAC East 2.3 1.3 2.0 2.3 Capital Issues 5,695 0 0 0 Organic ASP growth of APAC West 6.3 (0.7) 5.0 5.0 Other Financing CF (6,186) 0 0 0 Organic Normalized EBITDA Margin 32.4 28.6 33.4 36.7 Net Financing CF (1,399) (335) (411) (519) Currency Adjustments (32) 0 0 0 Chg in Cash
(745) 529 1,012 1,078 Source: Company, DBS HK
Industry Focus
China Brewery Sector
Page 6
China Resources Beer (291 HK EQUITY, HK$50.85, BUY (Upgrade from Hold), Target Price 12-mth HK$ 58.03) Forecast & Valuation General Data
FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance
Issued Capital (m shrs) 3,244
Mkt Cap (HK$m/US$m) 164,957 / 21,276
Major Shareholders (%)
China Resources Co Ltd 51.9
Free Float (%) 48.1
3m Avg. Daily Val. (US$m) 44.25
GICS Industry: Consumer Staples / Food, Beverage & Tobacco
Turnover 33,190 31,550 34,453 36,407 EBITDA 3,996 4,990 6,789 8,239 Pre-tax Profit 2,202 3,374 5,236 6,744 Net Profit 1,312 2,467 3,671 4,728 Net Pft (Pre Ex) (core profit) 2,293 2,993 4,185 5,226 Net Profit Gth (Pre-ex) (%) 0.7 30.5 39.8 24.9 EPS (RMB) 0.40 0.76 1.13 1.46 EPS (HK$) 0.47 0.89 1.33 1.71 Core EPS (HK$) 0.83 1.08 1.51 1.89 Core EPS (RMB) 0.71 0.92 1.29 1.61 EPS Gth (%) 34.3 88.0 48.8 28.8 Core EPS Gth (%) 0.7 30.5 39.8 24.9 Diluted EPS (HK$) 0.47 0.89 1.33 1.71 DPS (HK$) 0.19 0.36 0.54 0.70 BV Per Share (HK$) 7.91 7.94 8.75 9.68 PE (X) 107.2 57.0 38.3 29.8 Core PE (X) 61.3 47.0 33.6 26.9 P/Cash Flow (X) 34.3 21.1 25.1 24.1 P/Free CF (X) 53.9 26.6 32.8 30.3 EV/EBITDA (X) 34.3 26.4 18.9 15.1 Net Div Yield (%) 0.4 0.7 1.1 1.4 P/Book Value (X) 6.4 6.4 5.8 5.3 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 6.4 11.3 15.9 18.5 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 0.82 1.16 1.44 Other Broker Recs: B:24 S:4 H:5 Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F
Turnover 33,190 31,550 34,453 36,407 Net Fixed Assets 19,413 17,620 16,988 16,315 Cost of Goods Sold (20,964) (19,326) (20,111) (20,218) Invts in Assocs & JVs 0 0 0 0 Gross Profit 12,226 12,225 14,342 16,190 Other LT Assets 12,403 12,355 12,314 12,277 Other Opg (Exp)/Inc (9,954) (8,837) (9,092) (9,432) Cash & ST Invts 2,340 7,328 10,946 14,434 Operating Profit 2,272 3,388 5,250 6,758 Inventory 6,018 5,189 5,238 5,104 Other Non Opg (Exp)/Inc 872 389 84 (145) Debtors 1,000 864 944 997 Associates & JV Inc 0 0 0 0 Other Current Assets 417 417 417 417 Net Interest (Exp)/Inc 39 123 416 628 Total Assets 41,591 43,774 46,846 49,545 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) (981) (527) (514) (498) ST Debt 601 232 232 232 Pre-tax Profit 2,202 3,374 5,236 6,744 Other Current Liab 19,255 20,843 21,683 21,796 Tax (892) (911) (1,571) (2,023) LT Debt 124 330 330 330 Minority Interest 2 4 6 7 Other LT Liabilities 1,884 2,578 2,578 2,578 Preference Dividend 0 0 0 0 Shareholder’s Equity 21,890 21,957 24,196 26,788 Net Profit 1,312 2,467 3,671 4,728 Minority Interests (2,163) (2,167) (2,172) (2,180) Net profit before Except. 2,293 2,993 4,185 5,226 Total Cap. & Liab. 41,591 43,774 46,846 49,545 EBITDA 3,996 4,990 6,789 8,239 Sales Gth (%) 4.2 (4.9) 9.2 5.7 Non-Cash Wkg. Cap (11,820) (14,373) (15,084) (15,278) EBITDA Gth (%) 23.6 24.9 36.0 21.3 Net Cash/(Debt) 1,615 6,766 10,384 13,872 Opg Profit Gth (%) 43.8 49.1 55.0 28.7 Effective Tax Rate (%) 40.5 27.0 30.0 30.0 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F
Pre-Tax Profit 2,202 3,374 5,236 6,744 Revenues (RMB m) Dep. & Amort. 1,724 1,602 1,539 1,480 Eastern region 16,927 16,091 17,571 18,545 Tax Paid (706) (911) (1,571) (2,023) Central region 8,073 7,674 8,380 8,889 Assoc. & JV Inc/(loss) 0 0 0 0 Southern region 8,190 7,785 8,502 8,973 (Pft)/ Loss on disposal of FAs
FAFAsiaries/Investments (-/+)
891 366 353 337 Total 33,190 31,550 34,453 36,407 Chg in Wkg.Cap. 71 2,470 549 36 EBIT (RMB m) Other Operating CF (84) (219) (512) (724) Eastern region 1,007 1,609 1,933 2,596 Net Operating CF 4,098 6,682 5,595 5,849 Central region 598 652 838 1,067 Capital Exp.(net) (1,490) (1,400) (1,300) (1,200) Southern region 714 1,012 1,275 1,525 Other Invts.(net) 0 0 0 0 Total 2,319 3,273 4,046 5,188 Invts in Assoc. & JV (2,216) 0 0 0 EBIT Margins (%) Div from Assoc & JV 0 0 0 0 Eastern region 5.9 10.0 11.0 14.0 Other Investing CF 938 400 400 400 Central region 7.4 8.5 10.0 12.0 Net Investing CF (2,768) (1,000) (900) (800) Southern region 8.7 13.0 15.0 17.0 Div Paid (487) (535) (1,006) (1,498) Total 7.0 10.4 11.7 14.3 Chg in Gross Debt (241) 0 0 0 Key Assumptions Capital Issues 0 0 0 0 Mid-to-high-end beer revenue
share (%)
56.3 57.6 59.1 60.3 Other Financing CF (150) (14) (14) (14) Average selling price growth
(%)
2.8 (2.0) 4.0 4.5 Net Financing CF (878) (549) (1,020) (1,512)
Sales volume growth (%) 1.3 (3.0) 5.0 1.1 Currency Adjustments (73) (42) (57) (49) Adjusted EBITDA margin (%) 15.0 17.5 21.2 24.0 Chg in Cash 379 5,091 3,617 3,488 Core net margin (%) 7.1 9.5 12.1 14.4 Source: Company, DBS HK
Industry Focus
China Brewery Sector
Page 7
Tsingtao Brewery (168 HK EQUITY, HK$64.20, HOLD, Target Price 12-mth HK$ 69.71 (Prev. HK$53.5))
Tsingtao Brewery (600600 CH Equity, RMB81.43, FULLY VALUED, Target Price 12-mth RMB 63.37 (Prev. RMB47.76)) Forecast & Valuation General Data
FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance
Issued Capital - H shares (m shs) 655
- Non H shrs (m shs) 696
H shs as a % of Total 48
Total Mkt Cap (HK$m/US$m) 108,321 / 14,156
Major Shareholders (%)
Tsingtao Brewery Group Company
Limited 57.1
Major H Shareholders (As % of H shares)
Fosun International Ltd 26.8
E Fund Management Co. Ltd. 8.0
Tsingtao Brewery Group Company
Limited 5.9
Baillie Gifford & Co. 5.3
H Shares-Free Float (%) 54.0
3m Avg. Daily Val. (US$m) 26.92
GICS Industry: Consumer Staples / Food, Beverage & Tobacco
Turnover 27,984 28,168 30,537 32,483 EBITDA 2,819 3,419 3,951 4,492 Pre-tax Profit 2,727 3,422 3,891 4,518 Net Profit 1,852 2,347 2,682 3,130 Net Pft (Pre Ex) (core profit) 1,347 1,804 2,339 2,787 Net Profit Gth (Pre-ex) (%) 27.8 33.9 29.6 19.2 EPS (RMB) 1.37 1.74 1.99 2.32 EPS (HK$) 1.61 2.04 2.33 2.72 Core EPS (HK$) 1.17 1.57 2.03 2.42 Core EPS (RMB) 1.00 1.34 1.73 2.06 EPS Gth (%) 30.2 26.7 14.3 16.7 Core EPS Gth (%) 27.8 33.9 29.6 19.2 Diluted EPS (HK$) 1.61 2.04 2.33 2.72 DPS (HK$) 0.64 0.81 0.93 1.09 BV Per Share (HK$) 17.29 19.23 21.50 23.99 PE (X) 39.9 31.5 27.6 23.6 Core PE (X) 54.9 41.0 31.6 26.5 P/Cash Flow (X) 18.4 17.6 19.7 12.7 P/Free CF (X) 25.9 18.9 20.6 13.1 EV/EBITDA (X) 20.6 16.1 13.3 10.7 Net Div Yield (%) 1.0 1.3 1.5 1.7 P/Book Value (X) 3.7 3.3 3.0 2.7 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 9.8 11.2 11.4 11.9 Earnings Rev (%): 31 21 15 Consensus EPS (RMB) 1.59 1.90 2.18 Other Broker Recs: B:11 S:1 H:9 Income Statement (RMB m) Balance Sheet (RMB m)
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F
Turnover 27,984 28,168 30,537 32,483 Net Fixed Assets 10,401 10,457 10,405 10,362 Cost of Goods Sold (17,080) (16,994) (18,094) (19,095) Invts in Assocs & JVs 0 0 0 0 Gross Profit 10,903 11,174 12,442 13,388 Other LT Assets 5,910 5,516 5,369 5,233 Other Opg (Exp)/Inc (9,187) (8,825) (9,537) (9,921) Cash & ST Invts 16,826 20,003 22,667 27,250 Operating Profit 1,717 2,349 2,906 3,467 Inventory 3,182 2,405 3,345 2,723 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 151 133 144 153 Associates & JV Inc 21 21 21 21 Other Current Assets 843 843 843 843 Net Interest (Exp)/Inc 484 509 621 687 Total Assets 37,312 39,357 42,773 46,565 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 505 543 343 343 ST Debt 271 271 271 271 Pre-tax Profit 2,727 3,422 3,891 4,518 Other Current Liab 13,083 12,785 13,496 14,313 Tax (798) (975) (1,109) (1,288) LT Debt 0 0 0 0 Minority Interest (77) (100) (100) (100) Other LT Liabilities 3,298 3,298 3,298 3,298 Preference Dividend 0 0 0 0 Shareholder’s Equity 19,918 22,161 24,766 27,641 Net Profit 1,852 2,347 2,682 3,130 Minority Interests 742 842 942 1,042 Net profit before Except. 1,347 1,804 2,339 2,787 Total Cap. & Liab. 37,312 39,357 42,773 46,565 EBITDA 2,819 3,419 3,951 4,492 Sales Gth (%) 5.3 0.7 8.4 6.4 Non-Cash Wkg. Cap (8,907) (9,404) (9,164) (10,594) EBITDA Gth (%) 6.3 21.3 15.6 13.7 Net Cash/(Debt) 16,555 19,732 22,396 26,979 Opg Profit Gth (%) 14.6 36.9 23.7 19.3 Effective Tax Rate (%) 29.3 28.5 28.5 28.5 Cash Flow Statement (RMB m) Key Assumptions
FY Dec 2019A 2020F 2021F 2022F FY Dec 2019
A
2020F 2021F 2022F
Pre-Tax Profit 2,727 3,422 3,891 4,518 Key Assumptions Dep. & Amort. 1,102 1,070 1,046 1,025 Sales volume growth (%) 0.2 (2.8) 4.2 2.3 Tax Paid (819) (798) (975) (1,109) ASP growth (%) 6.2 3.6 4.0 4.0 Assoc. & JV Inc/(loss) (21) (21) (21) (21) COGS per unit (RMB/Liter) 2.1 2.2 2.2 2.3 (Pft)/ Loss on disposal of FAs
FAFAsiaries/Investments (-/+)
248 0 0 0 Distribution & Selling cost as % of Sales 18.2 17.4 17.5 17.0 Chg in Wkg.Cap. 878 320 (374) 1,252 Admin cost as % of Sales 6.7 6.3 5.9 5.7 Other Operating CF (99) 198 187 142 Net Operating CF 4,017 4,191 3,753 5,806 Capital Exp.(net) (1,155) (275) (154) (154) Other Invts.(net) 807 224 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc & JV 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (348) (52) (154) (154) Div Paid (711) (743) (939) (1,073) Chg in Gross Debt 0 0 0 0 Capital Issues 0 0 0 0 Other Financing CF (58) 0 0 0 Net Financing CF (769) (743) (939) (1,073) Currency Adjustments 4 4 4 4 Chg in Cash 2,904 3,401 2,664 4,583
Source: Company, DBS HK
Industry Focus
China Brewery Sector
Page 8
DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:
STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)
BUY (>15% total return over the next 12 months for small caps, >10% for large caps)
HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)
FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)
SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)
*Share price appreciation + dividends
Completed Date: 10 Nov 2020 15:29:38 (HKT)
Dissemination Date: 10 Nov 2020 18:15:45 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS
Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated
corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)
redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS
Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,
employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or
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Industry Focus
China Brewery Sector
Page 9
ANALYST CERTIFICATION
The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the
companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her
compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)
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the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the
real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the
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DBS Group.
COMPANY-SPECIFIC / REGULATORY DISCLOSURES
1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in China Resources Beer
Holdings Co Ltd (291 HK) recommended in this report as of 04 Nov 2020.
DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Thai Beverage PCL (THBEV
SP) recommended in this report as of 30 Oct 2020.
2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research
Report.
3. Compensation for investment banking services:
DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of
securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons
wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any
security discussed in this document should contact DBSVUSA exclusively.
4. Disclosure of previous investment recommendation produced:
DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment
recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12
months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations
published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.
1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of
which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person
accustomed or obliged to act in accordance with the directions or instructions of the analyst.
2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a
new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term
does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new
listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.
Industry Focus
China Brewery Sector
Page 10
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Industry Focus
China Brewery Sector
Page 11
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Industry Focus
China Brewery Sector
Page 12
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