The bank believes that last year's Q4 base is low, prices are expected to rise in Q4 this year, and barley prices for next year will be locked at the end of the year. Profit side elasticity will be released at an accelerated pace after cost pressure eases.
The Zhitong Finance app learned that Anxin Securities released a research report saying that heavy rainfall, floods, and a short duration of summer affect peak season sales. Although short-term sales are under pressure, more attention should now be paid to the increase in tonnage prices and profits brought about by the product structure upgrade. The structural upgrade is far from over. The bank believes that last year's Q4 base is low, prices are expected to rise in Q4 this year, and barley prices for next year will be locked at the end of the year. Profit side elasticity will be released at an accelerated pace after cost pressure eases. Looking at the medium to long term, structural upgrades are still continuing. It is expected that in '24, when the economic environment continues to recover, it will provide more impetus for high-end upgrading. Tsingtao Brewery (600600.SH) and Yanjing Brewery (000729.SZ) are recommended, focusing on China Resources Beer (00291) and Chongqing Beer (600132.SH).
Anxin Securities's views are as follows:
Summary of the three quarterly reports:Tonnage prices confirm high-end resilience, and costs are under pressure.Revenue side: Sales volume is divided, and tonnage prices are rising at an accelerated pace. The revenue side performance of beer companies in the third quarter was divided. The revenue of Tsingtao Brewer/Yanjing Beer/Chongqing Beer/Pearl River Beer/Huiquan Beer was -4.6%/+8.5%/+6.5%/+6.0%/+4.2%, respectively. Volume: Looking at the third quarter alone, the sales volume of Tsingtao Brewer/Yanjing Beer/Chongqing Beer/Pearl River Brewer/Huiquan Brewer/Budweiser Asia Pacific (Western Asia) was -11.3%/+4.2%/+5.3%/+1.8%/+6.0%/+1.1%, respectively. Price: Tsingtao Brewer/Yanjing Beer/Chongqing Beer/Pearl River Beer/Budweiser Asia Pacific (Western Asia) The tonnage prices were +7.5%/+4.1%/+1.1%/+4.3%/8.8%, respectively. Profit side: Cost improvements will still take time, and expenses are well controlled. Affected by raw material prices, the cost side of beer companies continues to be under pressure. 23Q3 Tsingtao Brewery/Chongqing Beer/Pearl River Beer/Huiquan Beer/Budweiser Asia Pacific tonnage costs were 2442/2420/2083/1889/2350 yuan/ton, respectively, +2.5%/-3.4%/+2.5%/-0.9%/+1.9%/+1.9%.
Industry trends:Short-term sales are under pressure, and medium- to long-term high-end development is still determined. The overall production of the beer industry increased in the first three quarters, and the peak season performance was lackluster. Due to the high base last year and the short high temperature period this summer, the beer industry's peak season production performance was relatively average. In the third quarter alone, beer companies above the national scale achieved production of 10.634 million kiloliters, or -5.5% over the same period last year. The stock price performance of the beer sector was weak. As of November 3, 2023, the SW Beer Index fell 22.13% from the beginning of the year, outperforming the Shanghai and Shenzhen 300 Index by 14.3 pct. Investors will have some doubts about the high-end development of the beer industry, but we believe that high-end development continues. Even if it is pressured by the economic environment in the short term, in the medium to long term, along with economic recovery, there is still great potential for structural upgrading. The importance of channel power cannot be ignored. We believe that in the high-end competition of the industry, brand marketing is an important part, but channel construction is still very important. In terms of costs, both Australia and barley have been abolished, and costs for beer companies are expected to ease. According to the annual report of Tsingtao Brewery Company, barley accounts for about 10-12% of the cost of beer companies. Beer companies generally lock in the price of barley the following year at the end of the year, so the removal of tariffs on Australian wheat this time is expected to have an impact on next year's costs. According to our estimates, if the average import price can return to the level at the end of 2019, the average unit price of barley imports is reduced by 37%, then the cost can be reduced by 3-4%.
Investment advice:The focus is on structural improvements and declining costs. Heavy rainfall, floods, and a short duration of summer affect peak season sales. Although short-term sales are under pressure, more attention should now be paid to the increase in tonnage prices and profits brought about by product structure upgrades. The structural upgrade is far from over. We believe that last year's Q4 base is low, prices are expected to rise in Q4 this year, and barley prices for next year will be locked at the end of the year. Profit side elasticity will be released at an accelerated pace after cost pressure eases. Looking at the medium to long term, structural upgrades are still continuing. It is expected that in '24, when the economic environment continues to recover, it will provide more impetus for high-end upgrading. Tsingtao Brewery and Yanjing Beer are recommended, focusing on China Resources Beer and Chongqing Beer.
Risk warning:Risk of economic downturn; risk of failure to raise product prices; risk of increased industry competition.