Tsingtao Brewery announced its 2024 semi-annual results. In the first half of 2024, the company achieved total operating income of 20.068 billion yuan, -7.06% year over year; realized net profit of 3.642 billion yuan, +6.31% year over year; realized net profit without return to mother of 3.427 billion yuan, or +6.15% year over year. The second quarter achieved total operating income of 9.918 billion yuan, -8.89% year over year; realized net profit of 2.044 billion yuan, +3.55% year over year; realized net profit deducted from non-mother was 1.914 billion yuan, +1.87% year over year.

Sales declined in the second quarter, and the slight decline in the share of sales of major brands in Qingdao dragged down the product structure. The company's revenue in the second quarter was -8.9% year-on-year. In terms of volume and price, sales volume was -8.1% year-on-year, and revenue of 1,000 litres of wine was -0.9% year-on-year.

The decline in sales was mainly affected by weakening consumer demand, unfavorable weather, and a high base for the same period last year; the decline in revenue for 1,000 litres of alcohol was mainly due to sales volume of the main brand in Qingdao, which had a higher tonnage level of -8.7% in the second quarter. The decline in sales of main brands was greater than average, which dragged down product structure performance. It is expected that this is related to weak consumption, lack of ready-to-drink scenarios, and the company's initiative to reduce classic products below classic products. In the second quarter, Qingdao's main brands accounted for 52.7% of sales, -0.4 pct year on year; other brands accounted for 47.3% of sales, +0.4 pct year on year.

Costs declined, expenses were well controlled, and profitability continued to improve in the second quarter. The gross profit margin for the second quarter was 42.8%, +2.7 pct year on year. Mainly due to the decline in barley and packaging costs this year, the cost of 1,000 litres of wine in the second quarter was -5.4%. On a month-on-month basis, the year-on-year decline in the cost of 1,000 litres of alcohol in the second quarter increased compared to the first quarter, mainly due to 1) a slight increase in the share of low-end products; 2) the cost of raw materials declined further month-on-month in the second quarter due to the use of high-priced raw materials in the previous period. The sales expense ratio for the second quarter was +0.4 pct year on year. Other expense ratios changed little year over year, and the overall cost control ability was still strong. Net profit margin for the second quarter was +2.5 pct year on year, and after deducting net interest rate of non-return net interest rate of +2.0 pct year on year, profitability continued to improve.

Actively respond to changes in demand and focus on the quality of long-term growth. Currently, overall consumer demand is still weak, and the lack of consumption scenarios such as restaurants and nightclubs has caused some resistance to the high-end process of beer companies, and the company is also actively responding in terms of product and channel strategies. On the one hand, the company continues to insist on promoting the key single products classic, pure raw, and white beer; on the other hand, this year, the company accelerated the cultivation of premium puree and high-end crystal pure products, and launched a fresh direct delivery model, and sales continued to grow in the first half of the year. In addition, this year, the company paid more attention to the quality of growth, strictly controlled channel inventory, and improved the freshness of terminal products, which helped improve the medium- to long-term brand image and consolidate channel advantages.

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.

Profit forecast and investment advice: Considering that demand is still under pressure in the current environment, we have lowered our profit forecast:

The company is expected to achieve total operating income of 32.61/32.69/32.87 billion yuan in 2024-2026 (previously estimated value of 34.71/35.89/37.22 billion yuan); realized net profit of 4.55/4.83/5.06 billion yuan (previous forecast value 4.92/5.64/6.27 billion yuan); current stock price corresponding to PE is 17/16/16 times, respectively. From a medium- to long-term perspective, the competitive advantage of the company's base market is stable, the product coverage is comprehensive, and the brand power is in a leading position in the industry. There is still strong support for medium- to long-term performance growth, and the company's rising dividend ratio strengthens shareholder returns and maintains a “superior to the market” rating.