Premiumisation to continue in FY24F
- CRB’s beer sales volume in FY23F inched up yoy, in line with industry output growth.
- We estimate overall ASP rose 4% in FY23F and likely by 3% yoy in FY24F, owing to a sustained product mix upgrade.
- The baijiu business achieved breakeven in FY23F and its current channel inventory is over 4 months. Management expects baijiu sales to grow by over 20% yoy in FY24F.
- Given this, coupled with the baijiu business’s improvement, we expect CRB’s sales and net profit to climb 4.8% and 11.1% yoy, respectively, in FY24F.
- Reiterate Add with a lower DCF-based TP of HK$60 (WACC: 8.5%, TG: 3%).
Mix upgrade trend will drive FY24F beer sales growth
According to China’s National Bureau of Statistics, industry beer output increased by 0.3% yoy in 2023 while 4Q23 output fell 10% yoy due to weak consumption sentiment. CRB’s overall beer sales volume inched up yoy in FY23F, in line with industry output growth. Management said in a conference call that the premiumisation trend was still strong in 2H23F, pushing sales volume of premium and above products up 20% yoy in FY23F. Heineken’s sales volume came to 0.6m tonnes, up 50% yoy, in FY23F and that for Snow draft climbed by double-digits yoy while Super X saw single-digit yoy growth. We estimate sales contribution of premium and above products reached 20-25% in FY23F. We now estimate overall ASP rose by 4% in FY23F and likely by 3% yoy in FY24F. Management has guided for overall beer sales volume growth of 1-2% yoy in FY24F, with sales volume for its premium and above beers jumping 15-20% yoy. As for mass market beer products, CRB aims to achieve yoy flattish sales volume growth in FY24F.
Baijiu business to deliver better sales growth in FY24F
For the Jinsha baijiu business, management believes baijiu revenue reached c.Rmb2bn in FY23F with Jinsha generating a small profit after deducting 45% minority interest and amortisation of intangible assets. And CRB did not need to make any impairments on goodwill for Jinsha in FY23F. However, the company needs to amortise intangible assets to the tune of Rmb700m per year for Jinsha for the next 10 years. For FY24F, management said in a call on 17 Jan during our consumer strategy day, it will focus on two things: 1) channel inventory reduction, and 2) product rebranding. The company plans to launch an
upgraded version of its premium product, Zhaiyao, to attract corporate customers. Last week, CRB also launched a new product for its mid-range Jingsha Huisha brand, retailing at Rmb500-700.
GPM to continue to improve in FY24F
In FY23F, CRB’s barley price increased by double-digits yoy but it was fully mitigated by lower prices for packaging materials, such as aluminium cans, paper, and glass bottles. We estimate GPM expanded 2.6% pts in FY23F and expect 1.0% pt yoy growth in FY24F. Management expects barley prices to see a double-digit yoy decline in FY24F. CRB does not have plans to increase its marketing expenses for mid-range products in FY24F and hence guided for declines in S&D and G&A expense ratios for the year.
Reiterate Add with a lower DCF-based TP of HK$60
We cut our EPS forecasts for FY23F-25F by 3.5-6.2%, reflecting our concerns that the current weak consumption sentiment might weigh down CRB’s beer volume growth; this also reduces our DCF-based TP. We reiterate our Add rating as we believe CRB has a well-built distribution network, which should help its new baijiu business expand and support its beer premiumisation plans. We expect the baijiu business to become another growth driver in the long term. The key downside risk is weaker-than-expected sales volume growth in FY24F.