JP Morgan: Maintains "neutral" rating for BUD APAC (01876) with a target price reduced to 8.4 Hong Kong dollars.

JP Morgan released a research report stating that BUD APAC (01876) is actively destocking due to weakened demand in China, and the decline in profitability due to rising raw material prices in South Korea. The bank expects that EBITDA for the fourth quarter of the 2024 fiscal year will decrease by 27%. The bank pointed out that the current valuation of BUD APAC has fallen to attractive levels, but has lowered its target price from HK$8.6 to HK$8.4, maintaining a "neutral" rating. Morgan Stanley stated that assuming BUD APAC's sales volume and average selling price in China will increase by 5% and 3% respectively year-on-year, sales and EBITDA in 2025 are expected to increase by 7% and 9% respectively year-on-year. At the same time, it is expected that EBITDA in the Chinese market for the fourth quarter of the 2024 fiscal year will decrease by 45% year-on-year, with sales volume and average selling price decreasing by 18% and 5% respectively, net sales decreasing by 22%, and gross profit decreasing by 32%. The bank pointed out that the deterioration in group sales was mainly due to active destocking measures, a high base for average selling prices, and continued weakness in the catering industry. At the same time, the correlation between the growth of Chinese beer sales in 2024 and offline sales is negative. Management did not see a recovery in offline channels in the fourth quarter of the 2024 fiscal year, casting a shadow over the group's price/composition growth in 2025. However, the bank believes that BUD APAC currently has normal inventory levels and can prepare for the upcoming Chinese New Year holiday in 2025. As for the Korean market, Morgan Stanley predicts that EBITDA in the Korean market for BUD APAC will increase by 10.5%, with sales increasing by 6%, average selling price increasing by 2%, net sales increasing by 8%, and gross profit increasing by 10%. The increase in average selling price has decreased from 10-14% in the first three quarters of the 2024 fiscal year to 2% in the fourth quarter, mainly due to the base effect of price increases.