Short-term results are under pressure... The overall performance of the beer market in the first three quarters of this year was weak. The catering channel is an important channel for beer sales (accounting for more than 40%), but the overall performance of the food and beverage market has been weak since this year. According to the “White Paper on China's Catering Brand Power 2024,” from January to August 2024, the number of registered catering companies nationwide decreased by 0.444 million compared to the same period last year, and the number of food and beverage related companies cancelled and cancelled more than 1.6 million (more than 90% of the whole year of 2023). In addition to this, the pressure on the beer consumption environment and changing weather have also had a negative impact on the beer market.

... However, China Resources has outperformed the industry, and the high-end process continues. While the overall industry is under great pressure, the overall high-end process of China's beer industry has slowed down. However, looking at China Resources Brewery's performance, in the first half of 2024, the company's sales of mid-range and above beer accounted for more than 50% for the first time. Sales of sub-premium products achieved single-digit growth, while sales of high-end and above achieved impressive double-digit growth. Sales of products such as Heineken, Laoxue, and Red Jade grew by more than 20% year on year. Although sales in the company's beer business fell 3.4% in the first half of the year, the excellent performance of the high-end product portfolio led to an increase in average price, making the company's overall revenue performance relatively stable.

Management actively adjusts strategies and is confident about future business development. Keep buying. Management said that although the beer industry has been under pressure since this year and the beer consumption environment still needs to be observed next year, the company will continue to promote high-end, differentiated and regional products. At the same time, the company will innovate in new product research and development, expansion of consumption channels and consumption scenarios, marketing models, etc., to achieve double-digit sales growth targets during a period with a good economic environment, and achieve single-digit growth targets during a period with a normal economic environment. Due to short-term industry pressure, we lowered our financial forecast and target price, but we are still optimistic about the company's long-term sustainable development. The latest target price is HK$37.29, based on 19 times (the average price-earnings ratio for the past three years was reduced by 1 standard deviation) and the 2025 price-earnings ratio (previously 22.2 times the 2024-25 average price-earnings ratio).

Performance review for the first half of the year. China Resources Beer achieved revenue of 23.74 billion yuan (RMB, same below) in the first half of 2024, a year-on-year decrease of 0.5%. Among them, the revenue from the beer business was 22.57 billion yuan, down 1.4% year on year, and sales volume/unit price were -3.4%/+2.0% year on year, respectively, and the performance was superior to the industry average. The improvement in the product structure and the decline in the price of some raw materials actively affected the gross profit margin, leading the beer business to increase the gross margin by 0.6 percentage points to 45.8%. Liquor business revenue reached 1.18 billion yuan, up 20.6% year over year. Effective inventory management is conducive to the stability of terminal prices, leading to a 2.1 percentage point increase in gross margin to 67.6%. Net profit attributable to mother achieved a 1.2% year-on-year increase of 4.7 billion yuan.