The slightly better-than-expected performance allowed Chongqing Beer (600132.SH) to stem the decline in its share price.

On the evening of August 16, Chongqing Beer released its 2023 semi-annual report. Thanks to the "cost reduction" measures and mainstream price bands (6-9 yuan) during the reporting period, Chongqing beer's revenue increased slightly by 7.17% year-on-year, and net profit increased by 18.89% year-on-year.

The day after the announcement, Chongqing Beer opened high at 86.88 yuan per share and quickly sealed the trading limit at 91.72 yuan per share before morning trading. Chongqing Beer's share price has fallen continuously this year, falling 26.11% as of August 17, and the rolling price-to-earnings ratio has been "killed" to 31.68 times.

The intuitive fundamental change of Chongqing beer is reflected in the hindrance of the high-end process of its products, and the consumption upgrading of beer products is the main line of increasing the income of major beer brands in the past few years. From 2021 to 2022, the revenue growth rate of Chongqing beer's high-end products (more than 10 yuan) plummeted from 43.47% in 2021 to 5.67% in 2022, and the growth rate in the first half of this year slowed to only 1.74%.

Chongqing beer-related sources told ID:TradeWind: "the upgrading of beer consumption in China is still in process." The consumption upgrading of the dairy industry and soft drink industry is earlier than that of the beer industry, and the rapid growth of the beer industry in recent years is actually in the process of 'supplement'. At present, the average price of domestic beer still lags far behind that of mature markets such as Europe and the United States.

However, the above-mentioned people also admitted that due to the short-term impact of the external environment on overall spending power in the past three years, high-end beer has entered a "calm period" after rapid growth and is "panting".

"cost reduction" drives profit growth

In the case of the hindrance of the high-end process, Chongqing Beer showed a "cost reduction" micro in the first half of the year.

During the reporting period, Chongqing Beer achieved revenue of 8.505 billion yuan, an increase of 7.17% over the same period last year, and a net profit of 865 million yuan, an increase of 18.89% over the same period last year. Net profit margin rose 2.06 percentage points year-on-year to 20.49%, an all-time high, while gross profit margin fell 0.19% to 48.48%.

Chongqing Beer's revenue growth slowed further from 11.16% in the same period last year, and its profitability was largely due to its ability to control costs.

In the first half of this year, Chongqing beer's three-fee expenditure was quite "restrained".

The three rates are all reduced to varying degrees compared with the same period in 2022. Its sales expenses increased by 6.96% year-on-year to 1.236 billion yuan, management expenses increased slightly by 2.19% to 269 million yuan, and financial expenses increased by 53.29% to-29.78 million yuan compared with the same period last year.

In addition, the research and development cost of Chongqing beer has been greatly reduced by 81.19% to 10.88 million yuan, and the tax payable has also been reduced by 24.36% to 488 million yuan compared with the same period last year.

"Chongqing Beer is good at cost control in the industry, such as its hedging business," a Shanghai-based private equity person who has long followed the consumer industry told ID:TradeWind01.

According to the semi-annual report, Chongqing Beer and its subsidiaries plan to use their own funds of no more than 110 million US dollars to choose the right time to invest in aluminum hedging business. As of June 30, 2023, Chongqing Beer's holdings totaled $53.24 million (389 million yuan).

A substantial "cost reduction" can only be a stopgap measure, how to further "open source" to make high-end beer products return to rapid growth is the urgent task of Chongqing beer.

In the first half of this year, high-end beer contributed 2.931 billion yuan in revenue to the restart of beer, an increase of only 2% over the same period last year. The growth rate of such products was more than 40% in 2021, and the share price of Chongqing Beer also reached a new high of 201.39 yuan per share that year, compared with 48.71 yuan per share at the end of 2019. It has quadrupled in two years.

But by 2022, Chongqing Beer's high-end beer began to sell out. The growth rate dropped sharply to 13.33% in mid-2022 and fell into negative growth in the first quarter of this year. In the second quarter, high-end beer rose 6.39% year-on-year to 1.603 billion yuan, lagging behind the 15.68% growth rate of mainstream beer products.

People related to Chongqing Beer said to ID:TradeWind01 that it is "very confident" in the high-end beer industry: "at present, Chongqing Beer's high-end beer sales account for 24%, but income accounts for 36%. From the perspective of the whole industry, high-end beer with more than 10 yuan accounts for about 18% and 19%. In the future, with the continuation of high-end beer consumption across the country, we hope to achieve a higher market share."

The private equity person told Xinfeng that although Chongqing Beer had a marginal improvement in the second quarter of this year compared with the first quarter, due to the "too large base" of Wusu, a large single product of Chongqing beer's high-end products, it is almost impossible to return to the top of the growth rate. "the era of strong growth of Wusu is over."

According to the Huaan Securities Research report, Wusu sold about 830000 tons in 2021, accounting for about 30 per cent of Chongqing's total beer sales.

Finding increment in nationalization expansion

At the same time as the high-end beer products in Chongqing, it is the nationalization process relying on the "big city plan".

In 2017, Carlsberg, the parent company of Chongqing Beer, launched the "Big City Plan", selecting key cities to make a breakthrough, with the intention of going out of the west and realizing nationalization. Carlsberg's choice of cities is mainly concentrated in eastern and southern China, and the number of cities covered by the plan reached 76 by 2022, compared with nine in 2017, according to the Hua an Securities Research report.

As Chongqing beer is mainly sold through wholesale agents, the number of Chongqing beer dealers has soared from 856 in 2019 to 3907 in 2020, as its coverage of cities has increased and Carlsberg has injected its Chinese business into listed companies.

However, the number of Chongqing beer dealers continued to decline between 2020 and the first half of this year, to 3512 in 2021 and 3055 in 2022, compared with only 2965 in the first half of this year.

Chongqing beer sources explained to ID:TradeWind01 that the change in the number of dealers is due to the company's strengthening of digital management and accurate statistics of the same distributor in different channels.

"We have been doing the integration of digital management, probably invested more than 100 million to do ERP system. Because there used to be a dealer in different regions and different channels, many may have registered different companies, and in the past they may have been managed as this first-tier distributor, but now this (statistics) is integrated in our ERP system, so it is reduced in terms of statistics. " The above-mentioned person said

As for the direct selling (including group buying) channel in the first half of the year, which dropped sharply by 44.91% to 19.54 million yuan compared with the same period last year, the person said that in the past three years, the direct selling channel has been used as a supplement to the existing drinking channel, and the current drinking channel has been fully restored, and "part of the demand may have shifted to the current drinking channel."

As for the product strategy in the process of nationalization, which product is the main product, the above-mentioned people said that they are all high-end beer products, and adjust the product mix according to the needs of local consumers.

"for example, in East China, we may use more international brands, including Wusu, 1664 and so on. We do not make the same brand everywhere, some places may be'3 + 3', some places may be'2 + 2'(refers to the combination of local and international brands). " The person said.