Meeting Takeaways: POA – Positioning for Recovery
Salient points in management presentation:
- Recovery ahead with easing COVID-19 restrictions. While the market may have seen a 15%-20% y-o-y drop in sales volume in April due to social restrictions, the May situation should be better with COVID-19 measures easing from the second half of May. The warm weather and easing COVID-19 restrictions should also favour beer sales recovery in China since June. Despite the remaining curbs in on-trade channels in certain cities, the management expects to see a better sales recovery in 2H22.
- Ongoing premiumisation. During 5M22, CR Beer was able to deliver a 10%+ y-o-y growth in the sales volume of “sub-premium and above” segment. Heineken has outperformed other brands (e.g., Snow Draft and SuperX) so far with its strong position in Zhejiang and Fujian provinces, where COVID-19 disruptions were limited. Supported by the ongoing premiumisation and the price hikes implemented in FY21, average selling price (ASP) should see a more than mid-single digit growth this year
- Cost pressure to ease. CR Beer expects to see a c.1.5bn impact in FY22 cost of sales considering the cost pressure from raw materials like aluminum this year, while CR Beer was able to hedge the impacts of barley price fluctuation, riding on its 12-month purchase by the beginning of FY22. The recent downtrend in aluminum price may also support CR Beer’s margin improvement in 2H22. In addition, CR Beer should continue to improve its cost efficiency of selling expenses, while increasing the focus on Heineken in order to leverage on its strong sales potentials.
Top three questions:
Q1: What is our view on the potentials of premiumisation in China? What would be our different strategies compared with previous years and our competitors?
The management stays positive on the outlook of sub-premium and above segment (>RMB8/bottle in on-trade channels). The sales volume of sub-premium and above beers in China should see high-single digit CAGR in the forthcoming 5-10 years. CR Beer expects the sales volume of this segment to reach 12-13m KL by 2025 (vs. 2021: 8-9m KL). The main driver of premiumization in the market is the young generation. Although the economy in China could be affected by COVID-19 resurgence and US-China relations, the local authorities of certain regions in China have taken out measures to stimulate economy. Over the medium to long run, the management remains optimistic on the premiumisation in China, supported by the consumption of young generation.
Q2: Could we have an update on our strategies in terms of the timing and percentage of price increase? How much do we expect our price increase to offset the cost impacts? Will the price increase affect our sales volume?
CR Beer does not expect significant pressure on sales volume from the price hikes, considering the industry-wide price increase among the peers. The price hikes in the current year are more likely to be implemented on a regional basis, taking into account the COVID-19 restrictions in different regions. The impacts of regional price hikes on overall ASP should be less than that of “Brave the World” products in FY21, (c.10% price increase nationwide). Overall, the management hopes to be able to offset the raw material cost pressure.
Q3: Could we have more color on CR Beer’s key account platforms? What is our latest progress and performance in these platforms so far? What would be our long-term targets on the key account platforms?
CR Beer aims to achieve 3,000 key accounts in the long term, while by end of 2021 there were 1,000+ key accounts. Despite the COVID-19 disruptions in April and May, CR Beer continues to stick to its key account strategies and to attract more key accounts into its platforms. CR Beer will also make efforts to assist key account clients to achieve sales volume target this year, e.g., ensuring sufficient supply, offering appropriate trainings and more product categories. CR Beer is also committed to establishing a well-equipped key client system by 2025.