CICC: Maintains a "outperform" rating on CHINA RES BEER (00291) with a target price of 32.4 Hong Kong dollars.

CICC released a research report, maintaining a "outperform" rating for CHINA RES BEER (00291), lowering revenue for 2024/2025 by 2.8%/4.3% to 38.70/39.51 billion yuan, lowering core net profit for 2024/2025 by 3.9%/4.8% to 5.20 billion/5.50 billion yuan, and introducing a core net profit forecast of 5.75 billion yuan for 2026. Considering the benign industry competition landscape and the company's leading position, the target price is maintained at 32.4 Hong Kong dollars. The bank expects the company's revenue and profit to decline slightly in low single digits year-on-year in 2024, with a slight decline in the beer business in 2H24 year-on-year. Sales volume is expected to decline in low single digits year-on-year, while prices are expected to achieve low single-digit growth year-on-year. Overall expense ratio is expected to remain stable, but due to the impact of many government subsidies in the base period, profit margin in 2H24 may decline compared to 2H23. CICC's main points are as follows: The trend of structural upgrade in the beer core business remains unchanged, with premium and above products continuing to achieve steady growth, offsetting external pressures, and driving a stable trend in the fundamentals in 2H24. Although the overall catering environment in 2H24 is weak, the company's strategy remains focused on high-end products. The bank estimates that the company will still see a low single-digit year-on-year increase in ASP in 2H24. With the benefits to Heineken in 2024 from strong product power and expansion in non-drinking channels, volume will maintain double-digit year-on-year growth, and pure craft beer performance will outperform overall sales volume performance. The bank believes that if the catering channel recovers this year, sales of high-end products may see release of elasticity. After the slowdown in industry upgrade, the company will further focus on the effectiveness of expense allocation, and the expense ratio in 2024 may remain stable. Although the overall industry upgrade has slowed down, the competition between industry leaders in the beer sector remains benign and sustainable, and the company's expense ratio in 2024 may remain stable. Looking ahead, the bank believes there is room for improvement in the company's cost-effectiveness, including targeted investments in non-drinking scenarios, as well as investments in niche products such as Kindsaidar Fourteen (CHINA RES BEER's thirtieth-anniversary celebration release). The liquor business continues to adjust due to macro-environmental impact, and may not quickly contribute to profits. It is recommended to pay attention to follow-up elasticity. The macro-environmental impact in 2H24 led to a noticeable slowdown in overall sales pace in the liquor sector, and competition in the mainstream price band of sauce spirits has intensified. The company's liquor sector business continues to adjust, and the bank expects full-year liquor revenue to remain basically flat year-on-year. Due to the impact of intangible asset amortization, profit margin may not have a significant contribution. However, the bank believes that based on the outstanding products and brand power of Jingsha and the comprehensive empowerment of CHINA RES BEER, in the future, as the environment and the liquor industry recover, the company's liquor business may bring some growth elasticity.