- Product premiumisation continues to be a major ASP driver in China, on its much lower average beer prices vs. most developed regions globally
- Raw material cost pressure could also stay well contained in 2022, given strong pricing powers of leading brewers and the sequential moderation in key cost items, including barley and aluminium
- The sector should sustain sound returns in multi-years. Our top pick is BUD APAC (1876 HK), in view of its competent premium product portfolio, faster recovery in S. Korea, strong online potential (e.g., BEES), M&A opportunities, and attractive valuation
Premiumisation is the key. Riding on a much lower average selling price (ASP) and per capita spending on beer products vs. developed regions, such as the UK, Japan and S. Korea, we see ample room for major brewers to expand in China along with their strong efforts on product upgrades. In 2022, their ASP could at least rise by c.5% along with robust sales volume growth of featured premium/super-premium products, as sales volume of premium beers merely reaches c.10% of the total now.
More selective regional exposures. Market leaders are expanding/strengthening their operations towards the more affluent cities of China to better promote premium products to the relevant consumers. While COVID-19 resurgences since 2H21 have impacted sales channels in China to some extent, market expectations of >90% population to receive booster shots by end-Mar 2022 could help cushioning impacts from further major COVID-19 outbreaks. We also expect brewers with meaningful overseas exposure (e.g., BUD APAC’s S. Korea division) to attain faster recovery this year.
Costs well under control. Successful operators with strong pricing power and effective product-mix upgrades have more than offset rising raw material costs and safeguarded gross margins. Brewers with strong global sourcing and hedging strategies (e.g., BUD APAC) could also have an advantage in sustaining profitability. Looking ahead, the recent easing of commodity prices (e.g., barley, aluminium) could alleviate overall cost burden for further gross margin gains. We prefer BUD APAC that currently trades at attractive 13.5x prospective EV/EBITDA, while CR Beer also offers excellent growth prospects.