Incidents:

The company released its 2024 semi-annual report on August 30, 2024. 24H1 achieved revenue of 20.068 billion yuan, -7.06% YoY; realized net profit attributed/withheld from mother of 3.642/3.427 billion yuan, +6.31%/+6.15% YoY. 24Q2 achieved revenue of 9.918 billion yuan, -8.89% YoY; realized net profit attributed/withheld from mother 2.044/1.914 billion yuan, +3.55%/+1.87% YoY.

Comment:

Sales are under pressure in the short term, and the pace of product structure upgrading has slowed down. 24Q2 achieved 2.446 million kiloliters of beer sales, down 8.05% year on year, continuing the trend of 24Q1 sales decline year on year. The pressure on sales was mainly due to poor consumption and weather conditions under a high base in the same period last year. Tsingtao Brewery, the main brand of 24Q2, achieved product sales of 1.288 million kiloliters, down 8.72% year on year; sales of medium and high-end beer were 0.936 million kiloliters, down 5.55% year on year, and the share of medium to high-end sales increased 1.01 pcts to 38.27% year on year. The average sales price of beer fell 0.91% year on year to 4054.9 yuan/kilolitre in 24Q2. Overall, the company's beer sales are under great pressure in the short term, and the pace of product structure upgrading has also slowed down.

Looking at the subregion, the 24H1 revenue growth rate in Shandong, South China, North China, East China, Southeast China, and other regions was -3.71%/-10.26%/-7.69%/-17.39%/-29.57%/-32.47%, with a net margin of +3.35/+0.85/+3.85/-4.34/-14.59/+1.83 pcts. Strong markets showed greater resilience.

The release of cost dividends will promote the emergence of profit resilience. Despite the slowdown in product structure upgrading, 24q2's gross margin was +2.71 pcts year on year to 42.79%, mainly due to lower prices of barley, glass, etc., and the cost of 24Q2 tons was 2319.7 yuan/ton, -5.40% year over year. The 24Q2 sales/management/finance expense rates were 8.75%/3.24%/-1.51%, respectively, +0.42pct/+0.16pct/-0.40pct. The overall cost rate was benign and manageable. In 24Q2, the company's net interest rate after deduction of non-return income increased by 2.04cpts to 19.29% year-on-year.

The company's brand advantage is stable and actively responds to fluctuations in industry demand. On the one hand, the company strengthened inventory control, streamlined costs and expenses, and relieved operating pressure; on the other hand, it insisted on high quality to lead development. Innovative operation models for Tsingtao Brewery's premium puree and pure crystal products met consumers' demand for fresh products and fast delivery; in the first half of the year, it launched new products such as Nikashi white beer, whole wheat augut, and non-alcoholic white beer, enriching the product matrix and continuing to consolidate the competitive advantage of Tsingtao Brewery's middle and high-end products.

Investment advice: The overall consumer demand in the beer industry is currently under pressure, so we have lowered our profit forecast appropriately. We expect the company's 2024-2026 EPS to be 3.45/3.92/4.42, corresponding to the current PE of 17x/15x/13x/, maintaining the company's “buy” rating.

Risk warning: weak consumer demand, rain and weather effects, fluctuating raw material prices