Product mix upgrade will continue in 2022
? Tsingtao issued a positive profit alert for FY21, with net profit rising by 43% yoy to Rmb3.15bn. Excluding a non-recurring gain of Rmb436m due to government acquisition of a land, the core net profit rose by 23.2% yoy to Rmb2.7bn, largely in line. The detailed results will be released on 29 Mar.
? Given the current Omicron threat in China, we believe the beer sales volume will be lackluster in 1Q22F and expect it to rebound in late 2Q22F. But the mix upgrade trend will continue, and we expect the Company’s sales to grow by 6.5% yoy in FY22F and its core net profit to rise 11.6% yoy.
? Reiterate Add with a higher DCF-based TP of HK$97.
Covid affected sales volume in 4Q21
Since Covid 19 volatility affected market demand, we expect Tsingtao’s sales volume to drop by c.3% yoy in 4Q21 and overall sales volume in FY21 to achieved positive growth of c.1.5% yoy. In 4Q21, excluding a one-off gain of Rmb436m from land disposal, the core net loss was Rmb897m, bigger than the loss of Rmb777m in 4Q20, due to higher cost pressure. However, the Company successfully upgraded its product mix, and we estimate that Tsingtao’s average ASP improved by 5%–6% yoy to Rmb3,747 per ton in FY21, with total revenue growing by 7% yoy in FY21F. In 1Q22F, Tsingtao is the sole beer brand to be an official sponsor of the Beijing 2022 Winter Olympics. We expect this to stimulate Tsingtao’s sales and improve its brand image in FY22F. But with the current Omicron threat, management expects sales volume to be under pressure in 1Q22F, but it is confident in achieving its share option target of net profit of at least Rmb2.36bn in FY22F.
Packaging material price pressure expected to persist in 1Q22F
The major raw materials, barley and packaging materials, account for 16% and 37% of the company’s COGS, respectively. Management said the packaging material prices started to rise significantly in 2H21 and still remain high. Management said the cost pressure in 1H22F will be higher yoy than that in 1H21. To reduce the cost increase pressure, Tsingtao raised the selling prices for various products in some strong markets in FY21. Tsingtao will continue to review its raw material prices and market feedback, and will continue to raise the selling prices of certain products in FY22F to reduce the effect of the raw material price increases. The Company will also continue to promote product structure upgrades to drive
up ASP and margins in FY22F.
New premium products launched in the market
Recently, Tsingtao launched a super-premium beer, Yishi Chuanqi (????), with a retail price of Rmb1,000 per bottle, through its online Tmall flagship store. The product uses old oak barrels from well-known whisky wineries in North America for storage, and its fresh taste period has been extended to three years, making it more valuable for collection. Management said that to ensure that the Company’s prices in online and offline channels remain consistent, they tend to use the online channel to promote new high-end products, such as Amber Lager (????), with retail price of Rmb27 per bottle, and Hongyun Dangtou(????), with retail price of Rmb15 per bottle, to strength the brand image.
Reiterate Add with a higher DCF-based TP of HK$97
We raised our net profit forecasts for FY21–23F by 18.2%/1.4%/3.5% to reflect a one-off gain from land disposal and better margins. We reiterate Add, since China beer consumption is still on an upgrade trend, particularly in the Rmb8–15 per bottle range. As the leading domestic brand, Tsingtao has a strong product portfolio and brand power. Tsingtao will continue to benefit from the product mix upgrade trend in FY22F. Downside risks are raw material price increases lowering its GPM and intensifying competition.