Description of the event

The company's total revenue for 2024Q1 was 10.150 billion yuan (-5.19%); net profit to mother was 1,597 billion yuan (+10.06%), after deducting non-net profit of 1,513 billion yuan (+12.11%). The rapid increase in profit was mainly due to improvements in tonnage costs.

Incident comments

Under the high base, sales volume was under pressure, and the share of main brands increased, and structural upgrades continued. Looking at volume and price breakdown: (1) Volume: 2024Q1 sales volume was 2.184 million kiloliters, down 7.58% year on year. Among them, Qingdao's main brand/sub-brand was -5.64%/-10.40% year on year, middle and high-end brands fell 2.44% year on year, and the middle and high-end share increased 2.31 pct to 44%. Structural upgrades accelerated, and white beer performed well. (2) Price: The annual tonnage price of 2024Q1 increased 2.6% year on year.

The cost per ton improved as scheduled, and the company's net interest rate reached a new high. 2024Q1's cost per ton decreased by 0.96%, gross margin increased by 2.12 pct to 40.44%, and the period expense ratio decreased by 0.97 pct to 15%. Among them, the sales/management expense ratio was -1.02/+0.41 pct year on year, driving the company's net interest rate to mother increased by 2.18 pct to 15.74%, setting a new quarterly high. Benefiting from the resumption of Australian and Mac procurement this year, the company's cost improvements have begun to be realized on the reporting side, and there has been no change in the positive direction of operations throughout the year.

Short-term base pressure eased, with subsequent marginal improvements. 2023Q1 was the quarter with the highest sales base, and subsequent sales pressure improved month-on-month. We believe that the pressure on the sales base has passed, beer consumption ushered in the peak season, and the marginal improvement trend is clear; looking at the continuation of structural upgrades in the first quarter, cost improvements have already begun to be realized, and it is expected to support continued improvement in profitability throughout the year. The long-term structural optimization strategy remains unchanged, and the volume of core single products is expected to be 54.1/64.9/7.63 billion yuan in 2024/2025/2026, respectively, with corresponding growth rates of 26.8%/19.9%/17.6%, and EPS of 3.97, 4.76, and 5.59 yuan/share, corresponding to PE 22X/18X/15X, maintaining the “buy” rating.

Risk warning

1. The risk of slow recovery in demand;

2. Industry competition further exacerbates risks;

3. Risk of changes in consumer consumption habits, etc.;