Incidents:

The company released its 2024 quarterly report. 2024Q1 achieved operating income of 10.150 billion yuan, -5.19% year-on-year, net profit to mother of 1,597 billion yuan, +10.06% year-on-year, after deducting net profit of 1,513 billion yuan, or +12.11% year-on-year.

2024Q1 achieved product sales volume of 2.184 million kiloliters, a year-on-year decrease of 7.6%. Among them, the main brand Tsingtao Brewery achieved product sales volume of 1.32 million kiloliters, a year-on-year decrease of 5.6%, and sales of high-end products of 960,000 kiloliters, a year-on-year decrease of 2.4%.

Key points of investment:

The unit price per ton continues to rise, and the share of sales of mid-range and high-end products is increasing. The overall unit price of 2024Q1 per ton was 4647.44 yuan/kilolitre, up 12.00% from 2023Q4 and 2.58% from 2023Q1. The company continues to promote brand optimization and product structure upgrades to improve product quality. In addition, 2024Q1's high-end products accounted for 43.96% of sales, an increase of 2.32pct over 2023Q1, and the company's product structure upgrade is still relatively smooth.

Prices of major raw materials have declined, control on the cost side has been strengthened, and the company's profitability has increased. The 2024Q1 gross profit margin was 40.44%, compared to +2.12 pct. The price-side driving factors were the increase in the share of sales of mid-range and high-end products and the increase in unit price per ton. The driving factor on the cost side was the decline in barley and packaging materials prices. In August 2023, China's Ministry of Commerce announced that it would no longer levy anti-dumping and countervailing duties on imported barley originating in Australia.

According to data from the General Administration of Customs, the average barley import price in March 2024 was 276.91 US dollars/ton, a sharp drop of 28.6% compared with the average barley import price of 387.57 US dollars/ton in March 2023. Furthermore, the spot price of glass has also shown a downward trend since the beginning of 2024. 2024Q1 net profit margin was 15.99%, +2.23% YoY. The company's overall sales expense rate/ management expense rate/ R&D expense rate/ financial expense ratio for a single quarter of 2024Q1 were 12.83%/3.40%/0.18%/-1.39%, respectively, -1.01pct/+0.41pct/+0.08pct/-0.43pct, respectively. Among them, the decline in sales expenses was mainly due to the company's increased cost investment efficiency.

Valuation and investment suggestions: In Q1 2024, due to the high base effect and relatively weak current market demand, Tsingtao Brewery's sales are under some pressure, but the continuous increase in the unit price per ton shows that the company's product structure upgrade is still relatively smooth. Revenue for 2024-2026 is expected to be 359.80/379.96/39.937 billion yuan respectively, and the 2024-2026 revenue growth rate is 6.02%/5.60%/5.11%. The net profit to mother is expected to be $51.25/57.47/6.226 billion yuan respectively, and the net profit growth rate to mother is 20.08%/12.13%/8.34%, respectively. The corresponding PE is 22/19/18X, maintaining the “increase in holdings” rating.

Risk warning: Industry competition increases risks, the risk of price fluctuations in raw materials and packaging materials, and the risk that economic recovery falls short of expectations.