Better recovery ahead
- Better sales recovery in 2H22 with on-trade channel reopenings
- Near-term cost pressure to ease in 2H22 with moderating commodity prices
- Maintain BUY with unchanged TP of HK$88.91 for H-share; downgrade A-share to HOLD with unchanged TP of RMB96.20, as it is currently trading at >22x prospective EV/EBITDA, >1SD above its 3-year average
Investment Thesis
Sales recovery in 2H22. China catering revenue has recovered decently since mid-May this year. Despite the near-term impacts from the COVID-19 disruptions, Tsingtao should achieve better y-o-y growth in revenue/earnings in 3Q22 with the ongoing recovery in ontrade channels. We believe Tsingtao should be able to score at least a flattish sales volume along with a 10%+ EBITDA growth in FY22.
Cost pressure to ease. We believe Tsingtao should still achieve GP margin expansion in FY22, despite the near-term raw material cost pressure in 1H22. Recent softening prices of aluminium and barley also signal easing cost pressure in 2H22. Potential price increase in certain main brand products could also help to mitigate the commodity price impacts.
Ongoing expansion. Tsingtao Brewery should continue to expand its footprint by entering more coastal cities in China that possess higher disposable income, while also strengthening its connections with
consumers through effective brand promotions.
Valuation:
Our TP of RMB96.20 for its A-share is benchmarked to 22x EV/EBITDA on a rolling basis. This also translates to our TP of HK$88.91 for its H-share, based on a three-year average discount of c.30% of its H-share vs. A-share.
Where we differ:
We are slightly more positive than the market on FY22/FY23 earnings, in view of ongoing premiumisation trends and better recovery in 2H22.
Key Risks to Our View:
Unexpected resurgence of COVID-19 cases, lower-than-expected ASP hikes, significant sales volume declines due to weather or market share changes, higher-than-expected raw material costs, etc
