Forecast 3Q22 profit decline compared with the same period last year

3Q22 We expect revenue in the Chinese market to decline by double digits and profits to decline by double digits compared with the same period last year. Sales in overseas markets grow by double digits, ASP increases by about medium digits, revenue increases by about 15-20%, and profit growth is basically the same as revenue growth. Overall, we expect 3Q22 sales to achieve positive year-on-year growth, ASP to be flat or slightly positive, revenue to achieve year-on-year to medium-to-high-unit growth, and profits to decline due to the drag of the Chinese market.

Pay attention to the main points

The recovery of the high-end consumption scene of 3Q22 in the Chinese market is slightly lower than expected, resulting in pressure to increase volume and price. Due to the relatively strict epidemic prevention measures in some key markets of high-end products in Chengdu and other companies since September, and the high structural base in the same period last year, the growth rate of sales of high-end and ultra-high-end products this year is under pressure, dragging down structural upgrading. We estimate that sales in China are basically flat year-on-year, ASP is slightly lower than the same period last year, gross profit margin is slightly lower than the same period last year due to rising costs and periodic pressure on high-end products, and put pressure on the profit side.

Overseas markets still showed high year-on-year growth, volume and price performance rose steadily compared with the same period last year. South Korea: in terms of sales volume, due to the opening of current drinking channels, we expect 3Q22 sales in the Korean market to grow by more than 10% year on year, gradually beginning to level with the pre-epidemic level. on ASP, because the structure of Korean current drinking channels is lower than that of non-current drinks, considering the 7.7% year-on-year price increase of the whole product line at the beginning of the year, we estimate that ASP will increase by about 5%. South Korea's overall revenue can achieve 15-20% year-on-year growth, but due to the additional investment in sales expenses, we estimate that the profit growth rate is basically the same as the income growth rate. India: due to the low base effect, we estimate that sales have a higher double-digit growth compared with the same period last year, and high-end and ultra-high-end sales also show a rapid recovery momentum of year-on-year growth.

Profit forecast and valuation

Due to the lower-than-expected recovery of the high end of the Chinese market, the growth rate of sales and profits in China was reduced by 2022 EBITDA2.7%/6.0% in 23 years to US $19.78 billion, corresponding to an increase in operating income of 7.0% in 2022 in 23 years, and by 7.0% in Beitda compared to the same period last year. Due to the reduction in profit forecasts, the target price was lowered to HK $27. The target price corresponds to the 2022 21.5/18.3XEV/EBITDA 23, split according to the segment valuation method, corresponding to the west / east 2023 19.4/13.1XEV/EBITDA, and the current price corresponds to the 2022 prime 23 16.6/14.1XEV/EBITDA, which has 29.8% upside space compared to the target price, and maintains the industry rating of outperforming.

Risk

The epidemic is repeated, the consumption scene is less than expected, and the high-end competition intensifies.