Tianfeng: Beverage industry shows resilience, Beer industry realizes cost dividends.

Tianfeng released a research report stating that the national beer production volume in April/May/June decreased by -9.1%/-4.5%/-1.7% compared to the same period last year, due to weak consumer growth and weather anomalies, with current drinking demand under pressure. Regional beer brands such as Chong Beer and Yanjing benefited from tourism and reform logic, with sales performance better than the national leader. In the first half of 2024, the retail sales of beverage products in China's total retail sales of consumer goods amounted to 156.4 billion yuan, with a growth rate of 5.6%; NONGFU SPRING and Uni-President (beverage business) saw double-digit revenue growth, Eastroc Beverage +44%. Focus on two main themes: 1) suggested focus on cost dividends and high dividend stocks such as TINGYI (00322) and U-PRESID CHINA (00220); 2) suggested focus on Beijing Yanjing Brewery (000729.SZ) with high growth potential due to reform logic. Beer Sector: 1. Revenue: Restaurant demand and weather effects, pressure on quantity and price. Quantity: National beer production volume in April/May/June declined by -9.1%/-4.5%/-1.7% year-on-year, due to weak consumer growth and weather anomalies, with current drinking demand under pressure. Regional beer brands like Chong Beer and Yanjing benefited from tourism and reform logic, with sales performance better than the national leader. Price per ton: The growth rate of industry price per ton in the first half of the year generally decreased to single digits; In Q2, some breweries saw a year-on-year decrease in price per ton (Tsingtao -0.9%, Budweiser -5.4%, Chong Beer's beer business remained flat year-on-year), we expect this is because: 1) Chong Beer, Budweiser have good product structures and higher price per ton base, and pressure on demand is more evident after the Spring Festival effect in Q2. 2) Pearl River, Yanjing ton price grew in double digits, due to their relative low ton price, and the outstanding performance of flagship products (U8, 97 Pure Draft). Structure: Upgrading continues, mid-to-high-end performance still better than overall, share still increasing, but Q2 growth has slowed. For example: Sales of mid-to-high-end Tsingtao beer in Q2 decreased by -5.5% year-on-year, and by -2.4% year-on-year in Q1; High-end revenue of Chong Beer decreased by -1.9% year-on-year in Q2, and increased by +8.3% year-on-year in Q1; Yanjing's mid-to-high-end revenue increased by +10.6% year-on-year in H1; Pearl River's high-end/mid-range/mass-market revenue increased by +17.2%/-13.4%/+12.0% year-on-year in H1, with high-end (Snowy Castle, Pure Draft) volume increasing by 14.3% and price per ton by 2.5% in H1, and by 15.05% in Q1. 2. Profit: Industry growth in the first five months of 2024 was in single digits, with cost dividends fully released. Cost: The year-on-year decrease in industry cost per ton in the first half of the year was around -1%, and the Q2 cost decrease was generally larger than in Q1, driven by a decrease in barley prices, increased use of low-priced raw materials, and significant improvements in Tsingtao. The cost pressure on Chong Beer was due to the increase in depreciation from the new factory in Foshan. Expense: This year's Olympic Games and European Cup have led companies to actively promote sports marketing, with the sales expense ratio increasing by 0-1% in H1, increased in Q2 compared to Q1, but overall maintaining a positive trend. Beverage Sector: The first half of 2024 benefited from travel, with sub-industry tracks showing divergence in prosperity, and expenses increasing. Scale: The retail sales of beverage products in China's total retail sales of consumer goods in 2024 H1 amounted to 156.4 billion yuan, with a growth rate of 5.6%; NONGFU SPRING, Uni-President (beverage business) revenue saw double-digit growth, while Eastroc Beverage grew by 44%. Profit: Cost dividends from the decrease in import prices of large pack milk powder and shipping costs, with dairy-containing companies seeing a significant increase in gross profit margin; Cost pressures from white sugar, almonds (with a purchase price in H1 increasing by over 30%). The sales expense ratio increased in H1 and Q2, offsetting some cost dividends. Track Prosperity Ranking: From the perspective of listed companies' growth rates, functional beverages and tea drinks have performed better. From January to May 2024, the total production volume of the beverage industry was 78.3345 million tons, a year-on-year increase of 8.99%; Especially, non-'big three' beverages such as tea drinks, protein drinks, and special purpose drinks showed significant growth, with the total production volume increasing by over 25% year-on-year, indicating that beverages with more functionality and health benefits are favored.