Investment advice: First coverage, with an “increase in weight” rating. There is a clear trend of structural upgrading, declining costs, and stable competition in the beer industry. In this context, we expect the company's shareholder returns to gradually increase, category expansion and continued growth in large single products, and the tonnage price and profit margin may reach new highs. We expect the 2024-26 EPS profit forecast to be 3.66/4.16/4.71 yuan. The current stock price corresponds to 2024 PE16X, giving it an increase rating.
State-owned holdings have shown their strength, and returns to high-dividend shareholders have increased. As of the first quarter of 2024, the Qingdao Municipal State-owned Assets Administration Commission indirectly held 32.51% of the listed company's shares through Tsingtao Brewery Group Co., Ltd., demonstrating its strength as the actual controller of the company. Moreover, the company's management has rich experience, perfect team construction, and strong strategic strength and execution. The company will raise the dividend rate to 63.9% in 2023 (40.2% in 2022), corresponding to the current stock price dividend rate of 4.0%. We expect that there is still potential for improvement in the medium term, and shareholder returns may gradually increase.
The strategy focuses on the “Qingdao main brand”, expanding the category and upgrading products. The company gradually selects local brands, strategically focuses on the “Qingdao main brand”, and highlights the high-end positioning of the main brand. Based on the original brand strategy, the company further accelerated the “1+1+N” product portfolio and strengthened the upgrading of the mid-to-high-end drive structure. We believe that the company's low-grade products will be selected at an accelerated pace. Classic products may be upgraded from Laoshan and below. Pure restoration can be expected, and white beer and new specialty products have great potential for growth. The company has raised prices several times since the beginning of '21. In the context of the upgrading of the industry structure, we expect the company's tonnage price to continue to rise and there is plenty of room. In the medium term, the tonnage price is expected to rise from around 3,500 yuan to around 5,000 yuan.
Costs and competitive advantages are highlighted, and profit margins may reach new highs. In the 2023 cost downward cycle, the company's cost pressure was relieved. Under the structural upgrade effect, the gross margin in 1Q24 reached 40.4%, while the overall cost ratio declined in the context of competitive landscape optimization. The non-net interest rate deducted in 1Q24 reached 14.91%, reaching a record high. The company continues to promote market development along the two horizontal and vertical strategies of “revitalizing the coast, speeding up the yellow coast, and liberating the river”. As the regional market along the Yellow River enters a harvest period, profits will continue to be released. Combining cost and competitive advantage analysis, we expect profit margins to reach another record high.
Risk warning: rising raw material costs, weather factors, increased competition.