CR Beer unveiled its 1H24 results. During the period, revenue and NP missed the market consensus by 7% and 3%, respectively, mainly due to the shrinking sales volume of mainstream beer driven by unfavorable macroeconomic and weather conditions, as well as a high base. Management expects a low-single- digit decline in total beer sales volume but positive net profit growth for 2024, supported by gross margin expansion and operational expense control. Beer premiumization continues despite overall consumption downgrading trend. Baijiu business integration lags behind expectations, and the company will focus on mid-to-low end products and maintain its dual-brand strategy. We like the company for its absolute leading position. Transfer coverage with a BUY rating and TP of HK$ 63.2, representing an 18x 2024E EV/EBITDA multiple.
Earnings dragged by weak consumption sentiment. CR Beer reported revenue/NP of -0.5%/+1.2 YoY in 1H24 amidst weak consumption sentiment, unfavourable weather condition and a high base in 1H23. The main drag was a 4.7% YoY decline in low-end beer sales volume, resulting in 3.4% YoY decline in overall beer volume. The company expects overall volume to decline in LSDs in 2024E. Faster growth in NP was powered by 1ppt lift in GP margin to 46.9% thanks to premiumization strategy. The company anticipated manageable material costs in 2H24 and expected GPM to further improve in 2024E, driving positive growth in NP.
Beer premiumization continues. Sales volume of sub-premium and above reached 1.46 mn tons in 1H24, up 1.1% YoY. In which, premium product grew 10% against the backdrop of a -3.4% for overall. This premiumization trend lifted the ASP of beer by 2% YoY. The Chairman shared that the company believes that the premiumization process of the beer industry has entered a phase characterized by diversification, with a focus on exploring new flavors and scenes. We think company's effort in this area will help mitigate the impact of slowing industry growth and support gross margins.
Baijiu integration progress lags, may expand mass-market product matrix. Baijiu revenue grew 20.6% YoY in 1H24, 4% short of consensus, given a slower-than-expected brand re-modelling. In 1H24, 70% of baijiu revenue came from high-end product Zhaiyao, which reported +50% revenue growth. The company aims to reduce this proportion to 60% in line with its dual-brand strategy and plans to expand the product matrix for the mass-market brand Jinsha.
Transfer coverage with a BUY rating. We lowered our revenue/NP estimates in 2024E by 6/11% to reflect the weak consumer sentiment. We transfer coverage with a BUY rating and TP of HK$ 63.2, representing 18x 2024E EV/EBITDA. Risks: weak macro environment, intensified competitions, and slower-than-expected expansion for Baijiu business.
