The company released its 2024 quarterly report:

24Q1: Revenue of $4.29 billion (+7.2%), net of $450 million (+16.8%), net of non-$450 million (+16.9%)

Revenue was in line with expectations, and profit exceeded market expectations.

Revenue side: Continued high-end

Volume-price split: Q1 volume +5.2% y/price ratio +1.8%. The volume increase is expected to be mainly driven by Wusu and Carlsberg. Usu outside China is still recovering.

The growth rate of high-end is better: high-end, mainstream, and economic revenues of 26/ 15.090 billion, respectively, +8.3%/3.6%/12.4% compared to the previous year.

The Southern Region continued to increase: Northwest/Central/Southern District/ Revenue was +3.2%/7.1%/9.3%, respectively.

Profit side: Q1 cost decline exceeded expectations

Q1 gross margin was +2.7 pct year on year, mainly due to cost per ton of -3.3%; in addition, the sales/management rate was +0.2/ +0.0pct year over year, resulting in a net profit margin of +0.9 pct to 10.5%.

Investment advice: leading high-end, maintaining “buying”

Our point of view:

Considering that the Foshan plant started production in Q2 and amortization increased by 5kw, the cost per ton is expected to increase in Q2; the total cost is expected to remain flat throughout the year due to a decrease in barley costs. The company owner is watching the structural upgrade and is concerned about the recovery situation in Ukraine and the Soviet Union outside the country.

Profit forecast: We maintain our profit forecast. We expect that in 2024-2026, the company will achieve total operating income of 158/166/17.6 billion yuan, +6.4%/+5.3%/+5.8%; net profit to mother of 14.8/ 16.3/ 1.76 billion yuan, +11.0%/+10.1%/+7.5% YoY; current stock price corresponding to PE is 22/20/19 times, respectively, and the 24-year dividend rate of 100% assumes a dividend rate of 4.5%, maintaining a “buy” rating.

Risk warning:

Demand fell short of expectations, market competition intensified, and raw material costs rose above expectations.