CICC released a research report stating that while maintaining the Budweiser Asia Pacific (01876) “outperforming the industry” rating, the 2024/25 profit forecast remains unchanged, with a target price of HK$16.15. The company's 1Q24 revenue/sales/ASP/ton cost/EBITDA (the following text are endogenous growth rates) were -0.4/-4.8/

+4.6/+0.4/ +4.2%, gross margin/EBITDA ratios +2.06/+1.53ppt, respectively. 1Q24 results were in line with expectations.

The main views of CICC are as follows:

Asia Pacific West: China's high base reduces volume prices and increases, and the trend of high-end upgrading continues.

Volume: Under the influence of a high base and weather, sales volume was -6.2%. Currently, the night channel, which accounts for the company's sales, is still gradually recovering. At the end of 2023, the company cooperated with Pacific to strengthen the retail channel layout, and the bank is expected to contribute to the total volume. Price: Revenue from high-end products and above continued to grow under a high base. 1q24 sales increased 2.5ppt year over year. Among them, revenue from innovative products such as Jinzun and Black Gold increased by double digits year on year, and structural upgrades continued to support the same 3.7% increase in ASP in 1Q24 China. In addition, the Indian market maintained double-digit growth in volume and revenue, while high-end and ultra-high-end products also achieved double-digit growth, increasing their share.

Asia Pacific East: Improved market structure in South Korea led to a restoration of profitability in the Asia-Pacific region.

Driven by revenue management measures, 1Q24 Korea achieved a year-on-year increase in revenue/sales/a decline in medium units/high unit growth respectively. Relying on the advantages of the product portfolio, Kaisi, HANMAC and contemporary brands all increased their share in the retail and catering markets.

Structural upgrades are compounded by declining costs, and profitability has improved markedly.

1Q24's tonnage cost also increased by 0.4%, and procurement costs decreased, but the cost increased slightly due to high-end technology. The company's 1Q24 gross margin increased 2.06 ppt and the EBITDA rate increased by 1.53 ppt under the resonance of structural upgrade+cost downgrading+cost reduction. Among them, the EBITDA rate in China increased by 1.45 ppt.

Annual outlook: Nationalization of high-end products, compounded by declining raw material prices, is expected to maintain the growth trend.

1) On the revenue side, continue to promote high-end and national expansion. Digitalization supports companies to strengthen channel control and cultivate consumer groups. The BEES dealer and customer interaction platform 1Q24 increased 45 cities to 265. The company uses brands such as Budweiser, Blue Girl, Corona, and Harbin Beer to expand sports, concerts, entertainment and other scenes, and continue to enhance brand influence. 2) On the cost side, the decline in the price of raw materials such as barley in 2024 is gradually reflected in the reporting side. Combined with the company's continued efficiency growth, it is expected to support the company's further increase in profitability.

Risks: The recovery of the Chinese market falls short of expectations, high-end development falls short of expectations, increased competition, rising costs, and poor price increases.