Tsingtao Brewery disclosed its 2023 annual report, achieving full-year revenue of 33.94 billion yuan, +5.5% year-on-year, and realized net profit of 42.7/3.72 billion yuan, or +15.9% year-on-year. 4Q23 achieved revenue of 2.96 billion yuan in a single quarter, -3.4% year-on-year, and realized net profit attributable to mother/withheld from mother of 6.4/-8.8 billion yuan, with losses of 0.8 to 220 million yuan respectively. The company reduced volume and price increased throughout 2023, and the Shandong base market performed steadily. 4Q23 accelerates the promotion of high-end strategies, and sales are under pressure. It is expected that it will continue to strengthen the middle and high-end markets in the future, and focus on the cost elasticity brought about by the cancellation of the two reversals between Australia and Macau. The company's EPS is expected to be 3.66, 4.19, and 4.73 yuan in 24-26, +17.1%, +14.5%, and +12.8% year-on-year respectively, maintaining the buying rating.
Key points to support ratings
Volume and price reductions increased throughout 2023, and the Shandong base market performed steadily. 1) In terms of volume price, the company achieved revenue of 33.94 billion yuan for the full year of 2023, +5.5% year on year, and sales volume/ton price -0.8%/+6.4% year over year, respectively, to 8.07 million kiloliters/4,239 yuan. The sales volume of the Qingdao brand and other brands increased 2.7%/-5.1% year-on-year to 456/3.45 million kiloliters, respectively, and the sales volume of mid-range and high-end products achieved year-on-year sales of +10.5% to 3.24 million kiloliters. With the continuous promotion of the strategy of high-end products, the company's tonnage price is growing rapidly. However, due to sales of some low-end products being squeezed out of high-end products, the company's overall sales volume declined slightly in 2023, and the sales growth rate slightly outperformed the industry (cumulative beer production in January-December +0.3% year on year). 2) By region, the company's revenue for the full year of 2023 in Shandong/North China/South/East/Southeast China was +7.0%/+1.5%/+6.5%/-0.3%/-3.1% to 228.7/79.8/36.2/27.7/890 million yuan, with gross margins of +1.1/+0.2/+2.4/+1.0pct to 34.6%/29.9%/32.2%/28.3%/28.2%, respectively. As a base market, the Shandong region performed steadily, contributing to the vast majority of revenue growth, and a steady increase in gross margin. The South China market has picked up, while the growth rate of the North China market has declined. Although revenue declined year over year in East China and Southeast China, gross margin increased.
4Q23 accelerates the promotion of high-end strategies, and sales are under pressure. In the 4Q23 single quarter, the company achieved revenue of 2.96 billion yuan, -3.4% year-on-year, with sales volume/tonnage price -10.2%/+7.6% year-on-year, respectively, to 713,000 kiloliters/4151 yuan. We determine that the 4Q23 company's beer sales declined significantly, mainly due to public opinion incidents, the pace of delivery ahead, and continued inventory removal after entering 2H23.
At the same time, 4Q23 has accelerated its high-end strategy, which has also curtailed the sales volume of 4Q23's low-end products to a certain extent. In terms of product structure, 4Q23's main brands/high-end products accounted for a sharp increase of 65.9%/47.4% in sales volume, helping the company achieve a high year-on-year increase in tonnage prices in 4Q23.
The cost per ton increased significantly throughout 2023. Expense investment remained steady, and profit levels continued to rise. 1) On the cost side, the company's tonnage cost for the full year of 2023 was +3.3% to 2,600 yuan. Direct materials/direct labor/manufacturing costs/outsourced finished product costs for a single ton of beer were +3.6%/+10.0%/+4.6%/-8.3%, respectively. Costs in all segments other than purchased finished products have increased. We believe this is mainly due to rising raw material costs and capacity upgrades under the high-end product structure. Although the tonnage cost pressure is high, the company's annual gross margin was still +1.8pct to 38.7% year-on-year, driven by a higher tonnage price growth rate. 2) On the expense side, the company's sales/management/finance expense ratios for the full year of 2023 were +0.8/-0.1/-0.04pct to 13.9%/4.5%/-1.4%, respectively. Due to the increase in the share of high-end products, the sales expense ratio has increased, and due to the increase in revenue volume, the management expense ratio has decreased.
3) On the profit side, driven by high-end products, the company's gross margin increased, driving a steady increase in profit levels. The company's net interest rates for the full year of 2023 were +1.0/+1.0pct year-on-year, respectively, to 12.6%/11.0%.
Continue to strengthen the middle and high-end markets, and pay attention to the cost elasticity brought about by the cancellation of the Australian and Mac reversals. We believe that the trend of structural upgrading in the beer industry will not change. As far as Tsing Beer is concerned, with the establishment of the main brand “1+1+2+N” product matrix, the company is expected to continue to develop its strength in the middle and high-end markets, and under the guidance of the “one vertical and two horizontal” regional strategy, further enhance its control over the base market with channel advantages and explore emerging markets. The tonnage price is expected to continue to grow at a high rate in the future. At the same time, due to the large increase in tonnage costs in 2023, the company is expected to unleash greater flexibility on the cost side with the cancellation of the anti-Australian policy and the entry into a new procurement cycle.
In terms of the pace of performance release, due to preparations ahead of 2023, we expect the company's 2024 performance to show a trend of low to high levels.
valuations
According to the data disclosed in the company's 2023 annual report and changes in raw material prices, we adjusted our previous profit forecast. The company's EPS for 24-26 is 3.66, 4.19, and 4.73 yuan, which is +17.1%, +14.5%, and +12.8%, respectively, corresponding to PE 22.9/20.0/17.8 times, maintaining the purchase rating.
The main risks faced by ratings
Fluctuating raw material costs, food safety risks, and promotion of core products falls short of expectations.