TSINGTAO BREWERY(600600)：4Q24 RESULTS IN-LINE;MIX UPGRADE TREND REMAINS INTACT

The Company reported 1.8% YoY net profit growth on 5.3% YoY revenue decline in 2024, both in-line. In 4Q24, sales volume saw positive growth after contraction for 5 consecutive quarters on a YoY basis, while ASP also rose nearly 2% YoY due to mix upgrade. Currently, Tsingtao-A and Tsingtao-H look fairly priced - higher dividend yield can offer a margin of safety while the more conservative growth trajectory is to be factored in. HOLD on both its H and A shares.

    Key Factors for Rating

    FY24 results review. Tsingtao reported total revenue of RMB32,138m (-5.3% YoY) in 2024, 0.6% higher than BOCIe. Specifically, beer sales volume decreased 5.9% YoY to 7.54m KL, while ASP increased 0.4% YoY to RMB4,189 per KL. By brand, sales volume of Tsingtao and secondary brands (e.g. Laoshan) came in at 4.34m KL (-4.8% YoY) and 3.20m KL (-7.2% YoY), contributing to 58% and 42% of total sales volume, respectively, in 2024. Sub-premium segment & above accounted for 42% of total sales volume, implying a stable trend of mix upgrade. Channel wise, on-trade/off-trade mix was unchanged at 41%/59%. The number of distributors reached 11,622 by 2024, with a net annual increase of 265. Online channel sales further grew 21% YoY in 2024. In terms of profitability, unit COGS was RMB2,509 per KL (-2.2% YoY). FY24 shareholders’ profit was RMB4,345m, up 1.8% YoY, slightly missing BOCIe’s +4.1% YoY.

    4Q24 highlights. In 4Q24, Tsingtao’s revenue rose 7.4% YoY, with volume up 5.6% YoY and ASP up 1.7% YoY. Sales volume of sub-premium segment & above grew 10.9% YoY.

    2025 outlook. According to our channel check, Tsingtao’s YTD sales volume was roughly flat YoY. We are optimistic about the sales volume recovery in the coming peak season, and look for 3-year revenue/EBIT CAGR of 1.9%/7.4% from 2024 to 2027. We forecast EBIT margin to go up 1.2ppts YoY in 2025, more dependent on ongoing mix upgrade and efficiency optimisation, apart from modestly lower raw material prices. Dividend payout ratio could further step up in 2025-27.

    Looking forward to a second growth engine. According to Qingdao SASAC, Tsingtao is strategically merging and restructuring with Qingdao Beverage, with an equity transfer of Qingdao Beverage at nil consideration. Qingdao Beverage’s total assets amounted to RMB7.5bn by 2022, and its FY22 revenue was RMB2bn, primarily from scalable products, incl. Laoshan mineral water and Huadong wine, according to public information. With reference to the growth history of beverage giants in more mature market, such as Suntory and Kirin, synergy exists between alcoholic and non-alcoholic drinks in several aspects (e.g. channel sharing, brand building, etc.).

    Key Risks for Rating

    Downside risks: 1) intensified industry competition; 2) unfavourable weather conditions; 3) input cost inflation; and 4) food safety issue.

    Upside risks: 1) accelerated premiumisation trend; 2) stronger-than-expected on-premise channel recovery; and 3) successful price hikes.

    Valuation

    We fine-tuned our revenue and net profit forecasts for 2025-26. Based on 16.0x 25E P/E (prev.: 15.0x 25E P/E), we derive our new TP for Tsingtao-H at HK$58.80. Assuming a price premium of 33% (prev.: 29%), we derive the TP for Tsingtao-A at RMB81.60 (prev.: RMB66.80). Currently, both Tsingtao-H & Tsingtao-A look fairly priced - higher dividend yield (on solid cash generation capability) can offer a margin of safety, and on the other hand, more conservative growth trajectory is to be factored in. HOLD on Tsingtao-H and Tsingtao-A.