- RE-ITERATE BUY Entry 63.40 – Target – 70.50 Stop Loss – 59.30
- Tsingtao Brewery Company Limited, together with its subsidiaries, engages in the production, distribution, wholesale, and retail sale of beer products worldwide. The company sells its beer products primarily under the Tsingtaoand and Laoshan brand names. It also provides wealth management, and agency collection and payment services; and financing, construction, and logistics services, as well as technology promotion and application services.
- Strong results amidst the pandemic. In the first quarter of 2022, Tsingtao Brewery’s revenue was RMB9.2bn, a YoY increase of 3.1%, whereas net profit after tax was RMB1.1bn, a YoY increase of 10.2%. In addition, the gross profit margin increased by 1.30 ppts to 36.7%.
- Higher selling prices to cushion inflationary cost pressures. Despite rising raw material costs such as malt and packaging materials, the strength of the domestic beer industry remains, and the adjustment in prices is expected to continue moving forward as companies continue to pass rising costs to customers. Other major Chinese beer companies, such as China Resources Beer Holdings Co Ltd (291 HK) have seen increases in average unit price and profit margins over the last 2 years.
- Every cloud has a silver lining. Hong Kong reopened gyms, beauty parlours, theme parks and cinemas on Thursday for the first time in more than four months, as authorities relaxed some of the world’s toughest Covid-19 curbs, which have weighed on people and businesses. Many restaurants were booked out for weeks ahead after the hours for dining out were extended until 10 p.m. from 6 p.m., while group sizes have been expanded to four from two.
- Valuation and consensus estimates. Tsingtao Brewery has a consensus rating of 19 BUYS, 3 HOLDS and 1 SELL, and a 12 month target price of HK$83.38. Tsingtao Brewery currently trades at 24x FY22 P/E, significantly lower than the average P/E of 38x over the past 3 years and 30x P/E during the 2020 pandemic era.
(Source: Bloomberg)