Matters:
Company announcement: On June 28, 2024, Tsingtao Brewery held the 2023 Annual General Meeting of Shareholders.
Guoxin Food & Drink's opinion: 1) Sales are expected to be under pressure in the first half of the year. Currently, the company is taking many measures to actively fill the sales gap; 2) it is expected that the product structure will continue to be optimized in the first half of the year, and the average sales price is expected to continue to rise; 3) the annual sales expense investment or increase will not change the trend of improving profitability; 4) the company's dividend rate is expected to maintain a long-term upward trend. Taking into account the weakening consumer demand in the second quarter and increasing the company's sales pressure, the profit forecast was slightly lowered. The company is expected to achieve operating income of 347.1/35.89 billion yuan in 2024-2025 (previous forecast value of 35.7.0 billion yuan), +2.3%/+3.4% year over year, and achieve net profit of 49.2/5.64 billion yuan (previous forecast value of 50.9/5.95 billion yuan), +15.3%/+14.6% year over year. The current stock price corresponding to PE is 20/18 times, respectively. From a medium- to long-term perspective, the company's product structure upgrade supports continuous and steady profit growth, rising dividend rates strengthen shareholder returns, and the company's long-term investment value is still strongly supported. Currently, the valuation is low, maintaining a “superior to the market” rating.
Commentary:
Sales are expected to be under pressure in the first half of the year, and the second half of the year will actively fill the sales gap. According to company exchanges, the company's sales volume in the first half of the year is expected to decline year-on-year due to multiple factors such as weak demand, unfavorable weather, and a high base during the same period.
However, in the first half of this year, the company strictly controlled shipments. Currently, the freshness of products on the market is high, and the company has made a lot of preparations for the July-September peak season in terms of promotional activities and consumer atmosphere creation. At the same time, considering the low base for the second half of last year, the year-on-year sales growth rate is expected to correct in the second half of the year, continuing to fill the sales gap in the previous period.
It is expected that the product structure will continue to be optimized in the first half of the year, and the average sales price for the whole year is expected to continue to rise in the first half of the year. Against the backdrop of a decline in total sales volume, middle and high-end products are also under pressure to grow. However, low-end products are shrinking faster, the product structure is still being optimized, and the trend of increasing average sales prices has not changed. The 6-10 yuan beer segment is resilient this year. The company has major core products such as Qingdao Classics and Laoshan in this price range, which has become an important support for product structure upgrading. At the same time, the company continues to promote new products in the high-end market segment. New high-end products such as Augute A6 and Nikashi were launched this year, and the high-end old Qingdao white beer also maintained a growing trend, all of which helped the overall product structure to continue to be upgraded. Furthermore, due to the current pressure of shrinking sales of low-end products in the beer industry, the company's product structure has enjoyed a certain degree of passive improvement.
Sales expenses may increase throughout the year, but it will not change the trend of increasing profitability. Considering the company's increased investment in terminal expansion, peak season promotions, and consumer promotion this year, it is expected that the sales expenses rate will increase slightly throughout the year.
This year's savings in raw material costs have opened up space for the company to invest in expenses. At the beginning of the year, the company had already locked prices for barley and aluminum. Barley costs declined definitively, aluminum costs were stable, and glass bottles and cartons were stable or declining, so there is a high degree of certainty about the overall cost decline. Moderate additional investment costs will not change the trend of increasing profitability in the context of structural upgrades and cost reductions.
The company's dividend rate is expected to maintain a long-term upward trend
In the past two years, the company has carried out a series of capital expenditure projects such as high-end production capacity construction, factory relocation, and capacity upgrading. The capital expenditure is relatively high. According to the company's plan, the need to build new production capacity in the future is reduced, and capital expenditure projects focus on maintaining and renewing existing production capacity, so it is expected that the company's capital expenditure amount will drop significantly after 2026. At the same time, the company has sufficient cash reserves and abundant operating cash flow, so the company's dividend rate is expected to continue to increase in the future.
Investment advice: Focus on long-term investment value and maintain the “better than the market” rating Considering the weakening consumer demand in the second quarter and the increase in sales pressure on the company, we slightly lowered the profit forecast: the company is expected to achieve operating income of 347.1/35.89 billion yuan (previous forecast value of 357.0/37.60 billion yuan), +2.3%/+3.4% year-on-year, achieving net profit of 4.92/5.64 billion yuan (previous forecast value of 50.9/5.95 billion yuan), +15.3%/+14.6% YoY, EPS $3.61/$4.13, respectively. The current stock price corresponding to PE is 20/18 times, respectively. Recently, the market revised the company's annual performance expectations, which were reflected in stock prices and valuations.
The third quarter will be a critical period for the company's annual performance. Recently, the weather in the north heats up, and the company actively accumulates sales during the peak season, and sales are likely to improve in the third quarter. From a medium- to long-term perspective, the company's product structure upgrade supports continuous and steady profit growth, rising dividend rates strengthen shareholder returns, and the company's long-term investment value is still strongly supported. Currently, the valuation is low, maintaining a “superior to the market” rating.
Risk warning
Macroeconomic growth has slowed beyond expectations; demand for middle and high-end beer has fallen short of expectations; the company's core product channel expansion results have fallen short of expectations; industry competition has intensified; and costs have risen above expectations.