4Q23 The profit side was dragged down by the increase in one-time marketing expenses.
The trend of product upgrades is unaffected, and the adjusted net profit margin is expected to increase at an accelerated pace in 2024.
Reiterating the “buy” rating, the target price was slightly lowered to HK$101.00 (15 times the 2024 adjusted EV/EBITDA).
4Q23 Sales and distribution expenses have surged or are one-off situations, and the trend of profit margin expansion is expected to continue. Tsingtao Brewery's adjusted net profit for 2023 was RMB 4,087 million, 7.7% lower than our forecast, mainly because Tsingtao Brewery increased its brand investment efforts under negative news in November 2023, which led to a significant increase in sales and distribution expenses in 4Q23 (from RMB 976 million in 4Q22 to RMB 1,225 million in the current period). We believe this drag is over, sales and distribution expenses should fall as a share of revenue in 2024, and profit margins should continue to expand.
Product upgrade trends are unaffected. In 2023, Tsingtao Brewery's net revenue increased 5.9% year on year. Among them, the net tonne price (excluding taxes and surcharges) increased 6.8% year on year, and sales decreased 0.8% year on year. The price per ton of Tsingtao Brewery reached 3,940 yuan, mainly driven by improvements in the product structure. Among them, sales of high-end products increased 10.6% year over year. Although the average cost of sales per ton increased by 3.3% in 2023, the overall gross profit margin increased 2.2 percentage points year over year to 34.0%. The increase in adjusted net profit margin was partially offset by an unexpected increase in the cost of goods sold (up only 0.8 percentage points to 13.0% year over year). As raw material prices are expected to decline in 2024 and the trend of product upgrades continues, we expect gross margin and adjusted net margin to increase by 2.1 and 1.9 percentage points, respectively.
Regular dividends increased. Tsingtao Brewery announced a final dividend of RMB 2.0 per share. In 2022, the company announced a final dividend of RMB 1.3 per share and a special dividend of RMB 0.5 per share to celebrate its 120th anniversary. Considering ordinary dividends alone, the company's dividend payout rate in 2023 actually increased from 48% to 64%.
Reiterating the “buy” rating, the target price was slightly lowered to HK$101.00 (the previous value was HK$101.58): We continue to use 15 times the 2024 adjusted EV/EBITDA to value Tsingtao Brewer-H shares, which is high in the current trading multiples range of the company's Chinese beer and liquor peers. Our target price has decreased slightly to HKD 101.00 based on our forecast adjustments and exchange rate updates. Since the current trading price of the stock corresponds to 12.6 times the 2024 P/E and good prospects for consumption and capital control, we think the current stock price of Tsingtao Brewer-H shares is attractive.
Risk warning: changes in consumer behavior or loss of market share in key channels; food safety incidents; increased costs of raw materials and labor; unsuccessful launch of new products.