Premiumisation well on track
- Premiumisation ongoing, with ASP to grow by mid-single digit in FY22-25
- Cost pressure to be well managed and GPM improvement to be sustained in FY22
- Maintain BUY with revised TP of HK$69.00
Investment Thesis
Premiumisation to continue despite near-term headwinds. Supported by the hot summer weather and channel recovery in China, the “sub-premium and above” segment continued to achieve double-digit growth in sales volume in 3Q22, along with decent growth in its featured brands including Heineken, SuperX, and Snow Draft. We believe CR Beer should see faster growth in the “sub-premium and above” segment, with a teens’ volume growth for FY22/FY23. The ongoing product-mix enhancement should also support an average selling price (ASP) CAGR at a mid single digit rate in FY22-FY25.
Cost pressure manageable. The price of aluminium has been on a downward trend, while the price of barley peaked in June this year. We believe CR Beer should be able to limit the impacts of raw material prices on unit production cost to a low single-digit growth by FY23. Supported by the ongoing premiumisation, CR Beer could see a slight increase in its gross margin in FY22, followed by >1ppt GP margin expansion in FY23. The company continues to aim for a GP margin of 50% over the medium-term.
Long-term growth drivers. We believe CR Beer should continue to seek suitable M&A opportunities. Its ongoing collaboration with partners in non-beer businesses (e.g., baijiu) could also act as additional growth drivers in the longer run.
Valuation:
We cut both FY22/FY23 adjusted EBITDA by 2% to stay more prudent given the low market visibility. Our new TP of HK$69.00 continues to benchmark a 22x adjusted EV/EBITDA on a 12- month rolling basis.
Where we differ:
We are slightly more conservative than consensus in terms of FY22/FY23 earnings, while expecting a decent margin improvement over the medium-term in view of CR Beer’s ongoing premiumisation and careful cost management.
Key Risks to Our View:
Severe COVID-19 outbreaks; rising competition; higher-thanexpected raw material costs; etc.
