Last night, a "Friends" conversation by Zhang Lei of Hillhouse Capital was on the screen in the industry.

Brushing the screen reflects the industry's recognition of Zhang Lei's vision in the field of investment-as a buyer's investment agency, Hillhouse is best at consumption in addition to the pharmaceutical sector. Among them, Hillhouse has a special preference for "beer" in the field of consumption, and has entered a number of domestic beer head companies, including: Tsing Tao Beer, Yanjing Beer, China Resources Beer.

Today, what we are going to talk about is China Resources Beer.

What is noteworthy is that Hillhouse's reduction of China Resources Beer's holdings this year contrasts greatly with the latest research and judgment of Dong Guangyang, a well-known analyst in the industry. According to China Resources Beer's semi-annual report 2020, Hillhouse disappeared among its major shareholders. Dong Guangyang, on the other hand, sees the market capitalization of China Resources Beer as high as HK $300 billion, which means that China Resources Beer has the possibility of "doubling".

Well-known analysts and Zhang Lei "sing a different tune"

Hillhouse Capital has long had a bond with China Resources Beer.

Hillhouse began to build a large number of positions in August 2017, China Resources Beer increased its positions by a small margin in 2017 and 2018, and held them until the end of 2019. It is still China Resources Beer's second largest shareholder.But in the middle of this year, Hillhouse disappeared among China Resources Beer's top 10 shareholders.

Photo: China Resources Beer's major shareholders in recent years

On May 20, Hillhouse Capital reduced its stake in 38.888 million shares of China Resources Beer at a price of HK $40 each, a total of about HK $156 million, according to SEHK equity disclosure. After the reduction, the latest number of shares is 134 million shares, with a shareholding ratio of 4.12%.

What is noteworthy is thatIn the latest research report, Dong Guangyang, a food and beverage analyst, gave China Resources Beer a three-year target market capitalization of HK $300 billion, while the company's current market capitalization is around HK $160 billion. This means that in Dong Guangyang's view, China Resources Beer will "double" in three years. In addition, it covers giving a "push" rating for the first time.

It is worth noting that Dong Guangyang is not an ordinary analyst--

In March 2018, Dong Guangyang, the former chief of China Merchants's food and beverage team, joined Huachuang Securities. According to public data, Dong Guangyang has specialized in the food and beverage industry for many years and is a well-known analyst in the industry.As of 2017, the team led by Dong Guangyang has won the first place in the food and beverage industry for the third year in a row.

The research paper also believes that on the basis of the current market, with the continuous increase in the market share of the high-end price belt, China Resources Beer is expected to completely open the gap with the second place in the industry and become an absolute leader in the industry.

If, as Dong Guangyang said, Zhang Lei, who intervened in China Resources Beer's investment in his early years but suddenly "turned around" this year, would it not be a "treasure"?

Three-year target market capitalization of HK $300 billion

The latest research report of Huachuang Securities shows thatGive China Resources Beer a target market capitalization of 205 billion (Hong Kong dollars, the same below; if RMB plus units), a three-year target market capitalization of 300 billion, covering the "strong push" rating for the first time.

The logic is that the high-end continues to pull, and China Resources Beer is expected to sell more than 2.5 million tons of high-end in five years. Huachuang Securities estimates that Heineken will contribute about 250000 tons of sales in 2020. Through the Heineken brand, as well as Snow's "four King Kong" high-end products and pure production, it is estimated that China Resources 3-5 years of high-end beer sales are expected to reach 2-2.5 million tons.

At the same time, based on the core assumptions such as the increase in high-end sales and the decline in cost per ton, the net profit forecast for China Resources Beer from 2020 to 2022 is 2.78 billion yuan, 4.14 billion yuan and 5.34 billion yuan respectively. In the context of rapid profit growth, it will be given 45 times PE in 2021, with a target market value of about 185 billion, corresponding to about 205 billion yuan, and a target price of 63 yuan.

From a three-year perspective, Huachuang Securities gave China Resources Beer a net profit of about 7.81 billion yuan in 2024, taking into account the continuous advance of high-end, superimposing the absolute leading potential of the company, giving 35 times PE in 2024, with a target market capitalization of about 270 billion yuan by the end of 2023, corresponding to about 300 billion Hong Kong dollars (similar to EV/EBITDA valuation method), giving a "strong push" rating for the first time.

High earnings growth is expected to support the high valuation hub in the next three years.

Analysts at Huachuang Securities expect China Resources Beer's high earnings growth over the next three years to support its high valuation center.

The logic is that the current beer sector and China Resources valuations are historically high. Reviewing the deduction of plate valuation in the past, when the net interest rate of major foreign-funded enterprises was about 3% and 4% in 2017, when the factory was closed and the logic of price increase was established, the market raised its expectation to 7%, 8%, and first responded to valuation. Therefore, the static valuation is on the high side.

At present, similar, it is expected that in the next three years, the rapid increase in ton prices and the significant decline in ton costs are expected to drive the increase in earnings to accelerate significantly, considering the clear trend of profit improvement in the company, driven by the advantages of high-end and scale efficiency, there is a high probability of doubling profits in the next three years, and high profit growth is the basis of supporting the center of high valuation.

If the increase in earnings exceeds expectations, the possibility of further catalytic improvement in valuation cannot be ruled out. In addition, considering the increase in the high-end market share of China Resources, and then promote to become the absolute leader of the industry in the future, the valuation premium of the beer sector is also expected to continue to show.

Long-term sword fingerAbsolute tap

China Resources Beer is the leader of domestic beer, after three years of strategic transformation, the upgrade is fully launched, through the marriage of Heineken, to make up for the shortcomings of high-end brands, obvious organizational optimization, lean sales, while closing 25 surplus small and medium-sized factories and optimizing nearly 30, 000 employees. The transformation effect accelerates the realization stage, 2020 is the first year of the decisive battle for the high-end strategy of China Resources, the company turns crisis into opportunity under the epidemic, the product structure continues to improve, and the profit acceleration has begun.

At present, the company's high-end strategy is in the right direction, and the arrival of the epidemic situation gives the company a good opportunity to overtake at the bend. Combined with the company's highly market-oriented team and mechanism, national extensive channel network, superior market share, efficient execution and strong resource input capacity, the company has the foundation to become an absolute leader.

Looking forward to the next three years, Huachuang Securities expects that, driven by high-end and scale efficiency, the company's gross profit margin will quickly rise to close to Budweiser's current level, the management expense rate (after reduction) has sufficient room for optimization, and the sales expense rate will rise steadily. The expansion of gross sales margin pushed the net profit margin up to about 15%. In the longer term, on the basis of the current market, with the continuous increase of the market share of the high-end price belt, the share is expected to completely open the gap with the second place in the industry and become the absolute leader of the industry.

In addition, Huachuang Securities expects that the next three years will be three years in which the price of per ton of wine will rise rapidly while the cost of per ton will fall more obviously. the rapid enlargement of the gross sales margin will accelerate the overall profitability of the industry, and the profitability of domestic capital leaders is expected to quickly catch up with foreign capital leaders.