In the past March, listed companies announced their results one after another. The “harvest” of the past year received intense attention from the market. Taking the Hong Kong stock beer sector as an example, the Zhitong Finance App noticed that in 2023, the beer industry continued to move towards high-end production, and most beer companies achieved a double increase in net revenue and profit.

However, judging from stock price performance, the trend is reversed. The stock prices of most individual stocks fell sharply during the year, and some individual stock prices even fell during the year. Throughout 2023, the beer sector of Hong Kong stocks fell by more than 35%, and this downward trend has continued since 2024. By the close of the market on April 10, 2024, the sector had already fallen by more than 12% during the year.

What happened to the beer industry behind the opposite of stock price trends and performance?

Overall performance is improving

Looking back at the 2023 performance trend, among Hong Kong beer stocks, Budweiser Asia Pacific (01876) is far ahead with revenue of US$6.856 billion. Despite this, the company's revenue growth rate was far from ideal. The year-on-year growth rate during the period was only 5.84%. China Resources Beer (00291), which ranked second, is catching up fiercely with a double-digit growth rate.

However, the revenue growth rate of Tsingtao Brewery (00168), which has always received much attention, was not impressive due to the impact of the “pee incident” in 2023.

Looking at the profit side, the smaller Hong Kong Shengli Brewery (00236) became the leader in net profit growth.

In 2023, Hong Kong Shengli Beer achieved a net profit of HK$858.98 million, a year-on-year increase of 165.90%. In response, the company stated that profit growth was mainly due to significant improvements in business performance in Hong Kong and South China.

However, Budweiser Asia Pacific, as a leader in the industry, has fallen into the dilemma of increasing revenue without increasing profits. The Zhitong Finance App notes that in 2023, Budweiser Asia Pacific's net profit to mother was US$852 million, a year-on-year decrease of 6.68%.

Specifically, the decline in earnings was mainly affected by poor performance in the fourth quarter of last year. In the fourth quarter of 2023, Budweiser Asia Pacific had revenue of US$1.29 billion and a net loss of US$23 million. At the same time, the company's sales volume declined in several important markets during the period. Among them, sales in the western Asia Pacific region, China, the eastern part of the Asia-Pacific region, and South Korea declined by 1.9%, 3.1%, 3.4%, and the number of units respectively.

As an important representative company of the high-end beer trend, Budweiser Asia Pacific already accounts for more than 50% of sales of high-end and ultra-high-end products. However, under such a high-end trend, the company's performance fell short of expectations, and its stock price hit new ground over and over again. Investors can't help but ask, is high-end beer no longer “fragrant”?

High-end technology is still the main theme of the industry

According to the Zhitong Finance App, the period before 2013 was an expansion period for the Chinese beer industry. As China's beer production peaked in 2013 and reached a peak of 50.65 million kiloliters, China's beer production turned downward from its highest point and declined to 34.11 million kiloliters in 2020. Since then, although beer production has picked up slightly, it has remained relatively stable. Among them, production in 2023 was 37.89 million kiloliters, up 0.8% year on year.

As industry demand peaked, China's beer market entered a stage of stock competition, and an era of high-end gaming competition began. The Chinese beer market is also beginning to shift from medium maturity to a high maturity market, and consumer demand for beer is shifting from single homogenization to diversification and individualization.

And throughout 2023, the beer industry did not stop at the pace of high-end production.

Among them, China Resources Brewery emphasized in its annual report that the company continues to promote the implementation of a “decisive victory over the high-end” strategy and continues to cultivate and promote various key high-end brands through various themed promotions and channel marketing activities. China Resources Brewery's high-end process is one of the important reasons driving the company's performance increase. Specifically, during the period, the company launched high-end products such as Snowflake Whole Wheat Pure, the alcohol-free beer “Heineken 0.0,” and the “Qin Shi Huang CPA” made from Chinese grains. It is worth mentioning that the company also launched the strong beer “” with a price of up to 1199 yuan to increase the ultra-high-end market. Financial reports show that in 2023, the company's sales volume of second-grade beer and above was about 2.5 million kiloliters, up 18.9% year on year. Among them, sales of products such as “Heineken,” “Snow White,” “Lao Xue,” and “Red Geek” all achieved rapid double-digit year-on-year growth.

Tsingtao Brewery will also continue the high-end trend in 2023, continuing to strengthen the brand advantages of white beer, pure raw, 1903 and classic, and accelerate the increase in the share of high-end products. Financial reports show that in 2023, the company's sales volume of high-end products was 3.24 million kiloliters, an increase of 10.5% over the previous year. The share of sales of high-end products increased 4.17 percentage points to 40.46%, and the product structure was significantly upgraded.

At the same time, small-scale companies such as Hong Kong's Shengli Brewery have also launched Shengli White Beer to increase the company's competitiveness in the premium beer market. Currently, this product has become one of the best-selling brands in the company's premium, specialty and craft beer product portfolio.

As a leading company in high-end beer, Budweiser Asia Pacific said that the company will continue to lead the high-end production of the Chinese market. In 2023, the company achieved double-digit growth in both high-end and ultra-high-end revenue. Furthermore, for markets such as India and South Korea, the company is also actively promoting the pace of high-end development. However, due to fierce market competition, the company's high-end development in the Korean market fell short of expectations. Furthermore, some analysts pointed out that previously, Budweiser Asia Pacific had a very high market share in the high-end beer market in China, but in recent years, domestic brands have been aggressive in the high-end offensive. This has made Budweiser Asia Pacific's advantage smaller and smaller, and its dominant position is fading year by year.

According to Huachuang Securities estimates, in the 2023 CR5 industry, Tsingtao Brewery accounted for the largest share of the 8-10 yuan price range, reaching 30%, surpassing Budweiser's 24%. In the 10-15 yuan price range, Budweiser Asia Pacific is still in first place, but Huachuang Securities pointed out that at present, China Resources Heineken has made up for the brand's shortcomings and achieved rapid sales in line with its own channel and resource advantages, and is also driving the growth of Pure Life into stores. Currently, it has the strongest potential and is expected to surpass Budweiser. In the price range above 15 yuan, Budweiser Asia Pacific showed an absolute advantage. However, it should be noted that in recent years, domestic brands have also gradually begun to pay attention to the ultra-high-end market.

Regarding 2024, many brokerage firms pointed out that high-end technology is still the main theme in the development of the beer industry.

The Bank of China Securities Research Report pointed out that the trend of structural upgrading in the beer industry will not change, and attention is being paid to the release of subsequent cost dividends. The beer enterprise structure upgrade process is resilient. Driven by the two major factors of improving the competitive landscape and clearing production capacity, the structural upgrading process of beer companies may slow down in the medium term, but it will continue. The beer industry is expected to fully benefit from the release of cost dividends in 2024, and there is still room for repair in current industry valuations.

Guolian Securities said that in terms of channel structure, the domestic restaurant industry is recovering quite well, and the beer industry is expected to benefit. There is plenty of room for high-end beer companies in China, and structural upgrading is still the main logic of the industry, but with a weak recovery in consumption, structural upgrading may be the main characteristic of the industry at this stage. At the same time, combined with improvements on the cost side, the profit space of leading domestic beer companies may be further freed up, and it is expected that they will break out of the bottom of valuation.

Huachuang Securities pointed out that in the domestic consumer goods environment, the underlying reason for the continuous rise in high-end beer is that beer has not kept up with the pace of consumer goods upgrading during the past 20 years. It has only accelerated in the past 5-6 years, and still has a clear “latecomer advantage.” It is expected that sales of low-grade beer in China will continue to shrink in the future, and the product structure is expected to evolve from a “pyramid type” to a “balanced type” or “olive type”, and there is still sufficient potential for medium to high-end expansion. As high-end beer enters the second half, leading wine companies are also entering a period of maturity and refinement of the operating system. There is still room for high-end production. There is still room for high-end production. It is also necessary for wine companies to explore quality, continue to make model single products of more than one million tons, and achieve high-end nationalization.

However, in response to recent stock price fluctuations, Huachuang Securities continued that this is due to excessive market concerns about high-end, which has led to a decline in valuations, but in reality, high-end marketing is more than halfway, which is the core driver for leading companies to increase their medium- to long-term profits.

Taken together, as China's beer industry enters the stage of stock competition, the era of high-end gaming competition begins. Against the backdrop of a continued recovery in the consumption scenario in 2023, most Hong Kong stock beer companies relied on high-end technology to achieve a double increase in net revenue and profit. As the high-end of domestic brands enters the second half, compounding the gradual improvement of the cost side, the “high-end” future of the beer industry is still worth looking forward to by investors.