CICC International: Gives CHINA RES BEER (00291) "outperform" rating, target price lowered to HK$30.9

Bank of Communications International released a research report stating that they have given CHINA RES BEER (00291) an "outperform" rating, lowering the group's profit forecast for fiscal years 2024 and 2025 by 2% and 4% respectively to reflect the weak performance in the last quarter and slow profit margin expansion forecast for this year. The target price has been lowered from HK$35.9 to HK$30.9. The bank expects CHINA RES BEER to have weak performance in the last quarter, lowering the sales growth forecast for the second half of 2024 from flat to a decline of 1%. They have also revised downward the revenue growth forecasts for the beer and liquor business from flat and 8.1% growth to -1.1% and 2.4% growth. Due to reduced government subsidies offsetting the positive effects of profit margin expansion and tax rate decreases, they predict a 50% decrease in the group's profit in the second half of 2024 to 253 million RMB. Bank of Communications International said that assuming no improvement in domestic consumption demand, they expect revenue for the 2025 fiscal year to increase by 1% year-on-year, mainly driven by sales growth in the beer and liquor business. The year-on-year decline of 10% in barley import prices in December is believed to drive an expansion of the beer business's gross profit margin by approximately 0.5 percentage points to 41.5%; based on moderate sales growth and stable raw material prices, they forecast the gross profit margin for the liquor business to remain steady at 63.8%; and predict that the overall gross profit margin for the group will expand by 0.6 percentage points to 42.9%.