1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue/sales/ASP/ton cost/EBITDA (endogenous growth rates are all endogenous growth rates) -0.4/-4.8/ +4.6/+0.4/ +4.2% year-on-year, respectively, and gross margin/EBITDA rates were +2.06/+1.53ppt, respectively. Asia Pacific West revenue/sales/ASP/EBITDA was -1.5/-4.9/+3.6/ +2.0% year over year; China's revenue/sales/ASP/EBITDA was -2.7/-6.2/+3.7/ +1.0% year over year, respectively; Asia Pacific East +5.2/-4.0/+9.6/ +18.7% year over year, respectively. This performance is in line with our expectations.
Development trends
Asia Pacific West: China's high base reduces volume prices and increases, and the trend of high-end upgrading continues. Volume: Under the influence of a high base and weather, sales volume was -6.2%. Currently, the company's nighttime channel, which accounts for a relatively high sales share, is still gradually recovering. At the end of 2023, the company cooperated with Swire to strengthen the retail channel layout, and we expect to contribute to the total volume. Price: Revenue from high-end products and above continued to grow under a high base. The share of 1Q24 sales increased 2.5 ppt year over year. Among them, revenue from innovative products such as Jinzun and Black Gold increased by double digits year on year, and structural upgrades continued to support 1Q24 China ASP's same increase of 3.7%. In addition, the Indian market maintained double-digit growth in volume and revenue, while high-end and ultra-high-end products also achieved double-digit growth, increasing their share.
Asia Pacific East: Improved market structure in South Korea led to a restoration of profitability in the East Asia Pacific region. Driven by revenue management measures, 1Q24 Korea achieved a year-on-year increase in revenue/sales/a decline in medium units/high unit growth respectively. Relying on the advantages of the product portfolio, Kaisi, HANMAC and contemporary brands all increased their share in the retail and catering markets.
Structural upgrades are compounded by declining costs, and profitability has improved markedly. In 1Q24, the company's cost per ton increased by 0.4%, and procurement costs decreased, but the cost increased slightly due to high-end technology. The company's 1Q24 gross margin increased 2.06 ppt and the EBITDA rate increased by 1.53 ppt under the resonance of structural upgrade+cost downgrading+cost reduction. Among them, the EBITDA rate in China increased by 1.45 ppt.
Annual outlook: Nationalization of high-end products, compounded by declining raw material prices, is expected to maintain the growth trend. 1) On the revenue side, we continue to promote high-end and national expansion. Digitalization supports companies to strengthen channel control and cultivate consumer groups. The BEES dealer and customer interaction platform 1Q24 increased 45 cities to 265.
The company uses brands such as Budweiser, Blue Girl, Corona, and Harbin Beer to expand sports, concerts, entertainment and other scenes, and continue to enhance brand influence. 2) On the cost side, the decline in the price of raw materials such as barley in 2024 is gradually reflected on the reporting side. Combined with the company's continued efficiency growth, it is expected to support the company's further increase in profitability.
Profit forecasting and valuation
We maintain our 2024/25 earnings forecast. Based on the SOTP valuation method, we maintain a target price of HK$16.15, corresponding to 10.5/9.6x EV/EBITDA in 2024/25, and the current stock price corresponds to 6.6/5.5 times EV/EBITDA. The target price has 47% room to rise compared to the current stock price, maintaining an outperforming industry rating.
risks
The recovery of the Chinese market fell short of expectations, high-end development fell short of expectations, competition intensified, costs rose, and price increases were poor.