The largest beer company in the Asia-Pacific region, occupies a leading position in high-end and ultra-high-end, and its performance is currently divided between regions.
The company's business is mainly concentrated in China, South Korea, and India, accounting for about 75%/19%/5% of revenue in '22, respectively. With a strong high-end brand matrix, the company ranks first in the high-end market share in Asia Pacific/China/Korea/India. Currently, the company's performance is divided across regions. China: Previously affected by “channel damage during the epidemic+increased competition in the high-end market”, the performance was under pressure. Under the “repair of low base scenarios and continued promotion of high-end technology”, the revenue growth rate in China in 2023 was higher than that of comparable companies in the same industry. The 24Q1 volume side was pressured by the base, and price side upgrades continued to maintain steady growth. Korea: The 23-year price increase was realized on the reporting side, driving a significant increase in EBITDA. India: High-end products are growing at an impressive rate, and business performance continues to lead the industry.
Reviewing the company's history: “Regional expansion+high-end vision” to establish a leading position; focus on profit and cash flow in operations. The company accurately selects high-quality brands with high local market share as targets and quickly seizes new markets through mergers and acquisitions/joint ventures. At a stage where other domestic beer industry leaders compete for share at low prices, the company has a high-end strategic vision. Brand side: Develop high-end and higher price ranges through global brands such as “Budweiser and Corona” to carry out national expansion; product side: “upgrade packaging+launch innovative products at higher prices”; channel side: seize the dominant position in high-potential channels through “buying+big business resources”; marketing side: elevate and build a high-end brand image. The high-end combination style of play has built the company's leading position. Currently, the share of high-end products from Budweiser Asia Pacific and the average price level per ton exceeds the industry average. “Under the pressure of 3G capital gene+deleveraging”, companies have high requirements for profit and cash flow. It affected the company's previous expenses to a certain extent. Currently, the parent company's deleveraging process is going smoothly, and debt pressure has declined from both an absolute and relative perspective. We believe that the parent company's debt pressure relief is expected to increase Budweiser Asia Pacific's investment in endogenous growth.
Chinese market: 1) Product side: Launched six flagship brands to meet the needs of high-end and differentiated scenarios. Among them, the three ultra-high-end products (Corona, Fujia, and Blue Girl) each have their own characteristics, the brand differences are obvious, and have passed multiple mature beer market tests (high-end market share is high); the high-end price band is dominated by Budweiser and Budweiser's innovative products. The growth rate of Budweiser's innovative products is good. 23 will achieve double-digit growth (total sales volume exceeding 100,000 tons), with the goal of accounting for more than 10% of the Budweiser family by 2025. We believe that unlike mainstream/mainstream+ price band competition, we believe that the high-end and ultra-high-end price band competition pattern is more fragmented, requires product portfolios, and imported brands account for a relatively high proportion. Budweiser Asia Pacific has rich and high-quality brand assets, can cover different consumer scenarios, provide consumers with diverse experiences, and has a clear advantage in the high-end and ultra-high-end price band competition; 2) Regional expansion side: It plans to continue to expand the high-end and ultra-high-end regional layout, and tailor strategies one city at a time. By the end of 2024, Budweis/ultra-high-end municipal distribution targets are 235/70 cities (currently 220/63); 3) Channel side: Focus on the development of multiple channels to make up for the shortcomings of the “dining+household consumption” channel. The company actively recruits other outstanding dealers in the industry (not limited to beer dealers) to cooperate to expand the capacity outside the night market.
Looking forward to the future, we believe that as a leading high-end beer in the Asia-Pacific region, the company has obvious advantages on the “brand+channel” side, and the high-end style of play is mature and sophisticated. Under the guidance of high-end strategy and the requirement for “profit+cash flow”, the company will continue to lead the high-end process in the Asia-Pacific market. It is expected that in '24, the sales base in China will gradually decline from Q3, and the trend of structural upgrading will continue. In terms of cost, due to increased productivity, favorable raw material costs, cost reduction and efficiency, etc., the company's cost per ton is expected to remain stable throughout the year. Meanwhile, the 23-year price increase in the Korean market is expected to continue to be realized on the reporting side, and the company's profitability is expected to continue to increase.
Profit forecast: We expect the company to achieve revenue of US$72.2/75.8/8.05 billion in 24-26, +5.0%/6.1% year-on-year, and achieve net profit of 11.1/12.4/US$1.41 billion, +29.8%/12.0%/13.8% YoY, EPS 0.08/0.09/0.11 USD/share, respectively. The company's latest closing price corresponds to 17.77/15.86/13.94 times PE in 2024-2026.
Risk warning: Increased market competition, rising raw material prices, increased exchange rate changes, etc.