Main points of investment

In the first half of the year, the company's revenue decreased slightly, and its net profit increased by 45% compared with the same period last year: the company's revenue in the first half of the year was 15.21 billion yuan (from January 1, 2016, the financial performance currency was changed from Hong Kong dollars to RMB), down 1.8% from the same period last year. Mainly affected by a 1.9% year-on-year decline in beer sales. Benefiting from the decline in raw materials and the decline in the rate of sales and administrative expenses, the company's first-half net profit rose 45% year-on-year to 605 million yuan, achieving earnings of 0.23 yuan per share without interim interest.

1H16 prices fell and profitability rebounded month-on-month: overall beer sales in China fell in the first half of 2016 due to adverse weather and heavy rains. The company's beer sales fell 1.9 per cent in the first half from a year earlier to 6.128m litres, outperforming the industry average, with Snow Beer accounting for 90 per cent of total sales. Benefiting from cost reduction and expense control, profitability improved in the first half of this year. The average price of 1H16 rose 0.1 per cent year-on-year, 9.5 per cent higher than 2H15 (the average price of vs.2H15 fell 5.6 per cent), so 1H16 gross profit margin rose 0.2ppts year-on-year and 5.6ppt sharply higher than 2H15 to 33.7 per cent. The proportion of sales expenses / administrative expenses in revenue of 1H16 company decreased respectively compared with the same period last year (2.5ppts/0.5ppts).

Our point of view: thanks to the hot weather and the Olympic Games, the company's beer sales have increased by a single unit in July and August. We judge that the growth of beer demand in China can hardly be greatly improved. China Resources Beer's growth will still be achieved by grabbing market share through different channels and improving the company's profitability. The company's acquisition of a 49% stake in China Resources Snow Beer may be completed in October, while the company will still consider suitable acquisition targets for extension development in the future. We are optimistic about the company's advantages in industry integration in the future. In addition, the continuous improvement of product structure is also conducive to the improvement of the company's profitability, while striving for more high-end product markets. According to the consensus forecast of the Bloomberg market, the company's net profit in 2016 is expected to reach 1.017 billion yuan, up 43% from the 712 million yuan in continuing business net profit in 2015. The company's current stock price corresponds to the 17-year 43x/37x in 2016, so investors are advised to pay attention.

Risk hint: the deterioration of market competition brings higher-than-expected promotional activities; the cost payment is much higher than expected