The Zhitong Finance App learned that Dongwu Securities released a research report saying that beer is selling well in 2024Q1. This year, various wine companies will make structural improvements and profit protection their strategic priorities this year to further cultivate their strong markets. There is room for price increases and fee reductions for some products, and structural upgrades continue. At the same time, companies tend to control spending in competitors' strong markets to improve cost efficiency. Profitability is expected to continue to improve. With the pro-cyclical scenario recovering, the 2024 peak season is worth looking forward to. Currently, the stock prices of high-quality stocks with performance support in the sector are already at the lower limit of historical valuation, and there is plenty of room for improvement.
Recommended: Tsingtao Brewery (600600.SH), China Resources Beer (00291), Yanjing Beer (000729.SZ), Chongqing Beer (600132.SH). It is recommended to follow Tsingtao Brewery (00168) at the same time.
The views of Soochow Securities are as follows:
The heavy structure is light on the total volume, the trend of upgrading continues, and the dividend ratio is ahead.
Judging from the price point of view, the upgrading trend in China's beer industry is slowing down or not downgrading, and the gross sales gap of enterprises continues to rise. In 2023, the number of domestic catering companies cancelled nearly 1.3 million, more than double that of 2022. The ready-to-drink scene is recovering slowly as the main position for upgrading the beer structure, compounding the pressure on overall consumption power. The high-end trend has slowed down, but the mid-tier products of wine companies have maintained good growth. Major domestic wine companies all achieved low to medium single-digit increases in tonnage prices in 2023. Demand for upgrades continues, and there is still room for profit margins to increase.
In terms of quantity, there is still room for marginal improvement in the concentration of leaders. Benefiting from post-pandemic demand recovery, China's beer industry produced 35.555 million kiloliters (yoy +0.3%) in 2023, but there is still a gap compared to 2019. The bank believes that the tightening of demand brought about by the decline in beer consumption per capita will raise industry barriers, and concentration will move closer to leading wine companies.
The valuation has reached the lowest range in history. In December 2023, the beer allocation ratio of the fund was 0.37%, falling to the level of June 2020. The market value of beer was the lowest in history in the past 13 years compared to the overall market value of A-shares in December 23. The valuation of individual beer stocks was low, and the allocation value was prominent.
Learn from Japan: Diverse innovation leads growth, and high-end space has considerable potential.
In the medium to low growth stage, product innovation and business diversification drive new quality growth, enterprises boost shareholder returns, and the valuation center is steady. After Japan's economy declined and beer consumption peaked per capita, leading domestic beer companies entered a stage of medium- to low-rate growth. At this stage, companies achieved growth through product innovation (grasping core consumer demand and creating star products), business innovation (diversified growth in non-main businesses), going overseas (gradually testing the waters to achieve rapid growth through mergers and acquisitions), and cost reduction and efficiency (increasing profitability through cost control). Demand for beer is rigid and has certain anti-cyclical properties. Referring to the Asahi Breweries case, the year-on-year growth rate of the company's revenue from 2003 to 2011 was in the 0 to 5% range, which is supported at the bottom of the valuation (around PE15x). During the medium to low growth period, capital expenses for mature businesses of beer companies gradually declined, and cash flow continued to improve. After the company switched to emphasizing shareholder returns in 2012, leading valuation centers still had room for further improvement (around PE20x).
China's beer industry is still in the dividend period of structural upgrading, and there is room for both quality and price.
The price of 630ml bottled beer in China has already passed the 5 yuan mark (2013-2024 price CAGR is 2.3%). Beer over 10 yuan already accounts for a certain share, but compared to other types of alcohol, alcoholic beverages, and some soft drinks, the price is still low. In 2022, China's medium and high-end beer sales accounted for 35% (43% in Japan and 79% in the US); the overall unit price of beer was 2.5 US dollars/liter (45% in Japan and 52% in the US, respectively). In the past 10 years, China's beer upgrades mainly focused on bottled & ready drinking. Consumer demand was becoming increasingly healthier & reduced in quality. Product upgrades/channel optimization/packaging innovation/category diversification will drive the average price of beer in China to continue to rise in the medium to long term. Leading brands are resilient in their operations and are expected to continue to benefit.
Investment advice: Compared with Japanese sake companies, at present, Chinese beer companies are still enjoying the dividends of increased revenue scale, product structure upgrades, and improved profitability on the performance side. The performance growth rate and ROE level are generally higher. At the same time, the company is also gradually emphasizing the importance of dividends on the shareholder return side, and dynamic valuation is still low in anticipation of an increase in dividend rates. Beer sales were good in 2024Q1. The bank believes that this year, various wine companies will make structural improvements and profit protection their strategic priorities this year to further cultivate their strong markets. There is room for price increases and fee reductions for some products, and structural upgrades will continue. At the same time, companies tend to control spending in competitors' strong markets to improve cost efficiency. Profitability is expected to continue to improve. With the pro-cyclical scenario recovering, the 2024 peak season is worth looking forward to. Currently, the stock prices of high-quality stocks with performance support in the sector are already at the lower limit of historical valuation, and there is plenty of room for improvement.
Risk warning: The recovery of the ready-to-drink scene falls short of the expected risks; competition among brewers intensifies; the risk of iterative consumer demand and policy restrictions; competition for alternative wines accelerates.