Meeting Takeaways: POA – Positioning for Recovery
Salient points in management presentation:
- COVID-19 restrictions to ease in China. While the recent COVID-19 disruptions may have affected the sales volume to certain extent, BUD APAC has seen sequential improvements with COVID-19 measures easing in China in May vs. April. Despite the remaining restrictions in certain areas, the company should see a better situation in 2H22 considering the ongoing recovery in nightlife and restaurant channels.
- Cost pressure to be well managed. BUD APAC continues to leverage on its global sourcing power and its 12-month hedging policy to partially mitigate the risks of raw material prices. BUD APAC’s efficiency initiatives (e.g., water usage reduction) may also help to offset the raw material cost impacts while supporting sustainability improvement. In the future, the management may also implement price increase while carefully inspecting market opportunities.
- Strong premiumisation potentials in India. BUD APAC has seen strong sales momentum of premium and super-premium products in India and should continue to launch new products in the market. The company also see the large potentials of non-alcoholic beers for non-beer drinkers in India to attract more market share and sales growth.
Top three questions:
Q1: Given the recovery of economy in South Korea, do we expect our strong performance in South Korea to continue for this year? As we expect on-premise channels to recover in South Korea, any changes in commercial strategies there?
BUD APAC should continue to take advantage of the favourable recovery momentum in South Korea to further extend its market share. The company should take more efforts in commercial investments in order to obtain more top-line growth. The management also believes that the volume growth there should also support the improvement in operational leverage and further support bottom line growth, and thus the EBITDA margin recovery.
Q2: Could we have an update on our regional expansion plans for premium and super-premium products in China? What is our latest progress in our selected cities? What is our view in terms of our potentials in these cities?
In China, BUD APAC targets more than 70 cities for the expansion of the premium brand Budweiser, and 45 cities for super-premium brands (e.g., Corona, Hoegaarden and Blue Girl). The company has seen strong sales momentum in the abovementioned cities which were not heavily affected by the COVID-19 restrictions in the past few months. The management remains optimistic on the future growth as the targeted cities for premium products are still of middle market maturity, with the potentials for strong growth in the number of middle-income households in next 10 years. BUD APAC also targets to expand the sales of super-premium products in coastal cities with higher disposable income per capita. BUD APAC should continue to launch different innovative products to serve different drinking occasions, channels and retailers. While most of the peers are competing in the premium segment at the current stage, the management is confident in the growth prospects of super-premium products in China.
Q3: Given the uncertainties from COVID outbreaks, do we see significant potentials from e-commerce channels in China? How is our latest performance in e-commerce?
The revenue contribution from e-commerce channels is estimated to be a low-single digit in the industry, while BUD APAC is in the leading position of such channels with a much higher channel contribution than the industry average. BUD APAC also communicates with third parties through B2C platforms to demonstrate its new products. The company also strengthen its relationships with wholesalers and retailers through its B2B platform BEES, where they could place order directly and obtain the latest information of promotional events with rebates and discounts. The platform may also serve as a key driver of future product launch in the long run.