Key points of investment

Event: Achieved operating income of $33.937 billion (+5.49%); net profit attributable to mother of $4.268 billion (+15.02%); net profit after deducting non-return to mother of $3,721 billion (+15.94%). 23Q4 achieved operating income of 2,958 billion yuan (-3.37%); net profit attributable to mother of 640 million yuan (-15.01%); net profit after deducting non-return to mother of 886 million yuan (-34.53%). Revenue was in line with expectations.

The share of sales of mid-range and high-end products increased significantly, and the increase in tonnage prices slightly exceeded expectations

1) Volume: In 23 years, sales volume of 8.07 million kiloliters (-0.82%), of which the main brand Tsingtao Brewery sold 4.56 million kiloliters (+2.70%), the sales volume of products above the middle and high-end products was 3.24 million kiloliters (+10.5%); 23Q4 sales volume was 713,000 kiloliters (-10.1%), of which the main brand Tsingtao Brewery sold 470,000 kiloliters (-3.49%), and the sales volume of products above the middle and high-end products was 338 million kiloliters (+7.10%). The share of sales of high-end products increased by 4.17pct to 40.46% in the middle of the year, and the product structure was upgraded significantly.

2) Price: The average tonnage price of the company in '23 was 4,238 yuan/kilolitre (+6.34%), and the average tonnage price of the 23Q4 company was 4,149 yuan/kilolitre (+7.47%). The increase in tonnage prices exceeded expectations, mainly due to structural upgrades and normalization of prices.

The Shandong base market continued its excellent performance. Revenue and profit growth in the East China market was impressive in 23. The revenue growth rates of Shandong, South China, North China, East China, Southeast China, Hong Kong, Macao and other overseas regions were 7.03%, 6.53%, 1.51%, -0.26%, -3.06%, and -0.54%, respectively. The net profit growth rates were 1.16%, 42.82%, -1.65%, 440.81%, -22.03%, and 66.34%, respectively. Among them, the revenue growth rate of the Shandong & South China regions was superior, and the gross margin of each region increased to varying degrees. The region's net profit growth rate is impressive.

The structural upgrade led to an increase in profitability, and the dividend rate increased 1) The gross profit margin and net margin changed by +1.81, +0.99pct to 38.66% and 12.81% year-on-year; 23Q4 gross profit margin and net margin changed +2.22, -3.66pct year on year to 27.47% and -21.99%.

2) The tonnage cost in '23 was 2,600 yuan/kilolitre (+3.29%). The increase in tonnage costs was mainly due to year-on-year increases in finished products and product inventory changes in '23.

3) The cost ratio increased by 0.78 pct to 17.30% year over year. Among them, the sales expense ratio, management expense ratio (including R&D expenses), and financial expense ratio changed by +0.82, -0.00, and -0.04pct to 13.87%, 4.77%, and -1.35%, respectively. The increase in sales expenses was mainly due to the company's increased brand promotion efforts, and advertising and business promotion expenses increased 28.21% year on year.

4) Operating cash flow fell 43.07% year on year to 2,778 billion yuan in '23, mainly due to the company's increased brand promotion and marketing promotion, as well as the year-on-year increase in various taxes and fees paid.

5) According to the profit distribution plan, the dividend rate for 23 will be raised to 63.93%, and the 20-22 dividend rate will be about 46%-48% without considering the special dividend.

Profit forecasting and valuation

The trend of product structure upgrading continues in '24. We expect sales performance to be under pressure in the first quarter of '24 under a high base. We expect sales performance to improve after April, compounded by summer competition catalysts, and focus on peak season sales performance. Due to the end of Australia's “double reverse” measures in 23, barley procurement costs are expected to drop in 24, which is expected to lead to a significant improvement in tonnage costs and an increase in profitability. Revenue growth in 2024-2026 is expected to be 5.13%, 5.03%, and 5.04%, respectively; net profit growth rates to mother will be 17.40%, 14.03%, and 11.41%, respectively; EPS will be 3.67/4.19/4.67 yuan/share; and PE will be 22/19/17 times, respectively. The current valuation is cost-effective and maintains a buy rating.

catalytic

Consumption upgrades continued, the catering industry chain recovered, and Pure Life & Classic achieved relatively rapid growth.

Risk warning

Consumption upgrades fell short of expectations; Pure & Classic sales fell short of expectations.