Zhongtong Finance APP learned that Huatai Securities released a research report stating that in the context of the impact of external environment and internal economic transition, the market has a disagreement on the growth logic and valuation pricing of the beer industry, and structural upgrading is still the core logic. From the perspective of structure, the product with 100-300 billion yuan product operating income has a corresponding high-quality and mid-range product with a price 8 yuan lower than that of the consumer. It is the core driving force for the industry upgrading by replacing products under 6 yuan. In terms of valuation, marking the US 90s upgraded midfield Budweiser PE (21-27x), and comparing the operating aspects and shareholder returns of domestic and overseas leaders, it believes that the domestic leader has more upgrading space and power, which supports the significant compound profit growth rate (11%-16%) in the next three years, which is significantly higher than that of Budweiser (7%-12%) at that time; in addition, the domestic leader has better cash flow, and under the policy promotion, the willingness and ability to pay dividends are significantly higher than overseas, which supports the higher industry valuation premium of domestic leaders.

Here are the main points of HuaTai Securities:

Upgrading dimension: the trend of product-price ratio and attention to the 8-yuan price range.

Huatai Securities pointed out that in the post-epidemic era, the popular consumption model has shifted to pursuing the 'product-price ratio' trend. Beer is divided into three categories according to price range: low-grade (below 6 yuan), mid-to-high-end (6-10 yuan), and high-end (10 yuan and above). The product attributes shifts from quench thirst to quality upgrade and emotional experience upgrade. Under the 'product-price ratio' trend, consumer willingness to pay premium has decreased, and the 8-yuan product meets the high-quality and mid-range attributes. From 2019 to 2023, it has made the largest incremental contribution against the background of the industry's overall decline. According to Huatai Securities' estimation, products in the price range below 6 yuan will still account for about 60% of sales in 2023, while the 8-yuan price range will serve as the goalkeeper for the upward iteration of the huge low-end liquor upgrading dividend, and it will also effectively undertake the demand downturn of the high-end liquor. Its continued expansion is the most solid support for the industry upgrade.

Valuation dimension: upgrading and dividends support the valuation premium of domestic leaders.

The market is concerned about the pricing of high-end midfield leaders, comparing overseas and learning from the experience. Reviewing Budweiser, its sales volume/ton price CAGR from 1997 to 2007 were 1.5%/3.4%, and its share increase and structural upgrading entered a stable period. Its PE was around 21-27x that year; standing in the current situation, compared with the valuation of European and American leaders, the latest closing price of Budweiser InBev/Heineken/Carlsberg corresponds to 24-year PE 18-20x, matching the profit CAGR of 5%-13% in 24-26 years. The current average valuation of domestic leaders is 20-25x, but the profit CAGR from 24-26 years is 10%-15%, and the operating quality is better. In addition, domestic leaders attach more importance to shareholder returns, with a higher dividend ratio and still room for improvement (overseas dividends account for 30%-50% due to high capital expenditures, while the domestic leader is at 60%+ in 23 years), supporting the valuation premium.

Looking forward to 2024: cost improvement is highly realized, and the business climate is gradually improving quarter by quarter.

Huatai Securities believes that in terms of the operation end, with the gradual decrease of the sales base in 2023, leading enterprises are expected to realize a month-on-month improvement in operation, and is expected to catalyze favorable support for the whole year during the peak season; in terms of profitability, on the one hand, direct price increases by leading enterprises in 2024 have contributed to the increase of ASP, although the contribution has been weakened, the structural upgrading is still continuing, and the 8-yuan price range has performed outstandingly in leading the upgrading; On the other hand, Aomai's imports have led to a significant decline in barley procurement prices, and packaging materials are stable and slightly decreasing. High realization has already been achieved in the first quarter of 24, which supports the continuous growth of profits. It is bullish on the overall business climate of the beer sector, focusing on the upgrading performance of leading markets, and recommends Yanjing Beer (000729.SZ), which has a fundamental performance and a relatively reasonable relative valuation; leading enterprises Qingdao Beer (600600.SH, 00168) with a significant improvement in operating conditions and a solid profit foundation, and China Resources Beer (00291); focusing on high-dividend targets Chongqing Beer (600132.SH).

Risk warning: macroeconomic growth does not reach expectations, industry competition intensifies, and food safety risks.