Soochow: Resilience of beer demand in 2024 still exists, focus on scene repair in 2025.

Soochow released a research report stating that for the beer sector, it is believed to currently be in the bottom area. Looking at it from a one-year perspective, there are two opportunities: first, the consumption beta repair opportunity brought about by the changes in macroeconomic policy expectations at the end of the year; second, the possibility of better realization of fundamental volume and price next year. In the short term, the current fourth quarter is a low season for beer consumption, with little change in fundamentals, focusing on the consumption beta repair opportunity. If consumption policies can be implemented, it is expected to drive the recovery of catering and circulation scenarios, and the beer sector is expected to usher in a beta configuration opportunity. In the medium term, the certainty of better realization of beer fundamentals in terms of volume and price next year is higher (current catering scenarios are still relatively low, and next year will be better than this year). Soochow's main points are as follows: Weak growth in income and profits in 25Q3 In 25Q3, the quarterly growth rates of income and profits weakened compared to the previous quarter. On one hand, although the base was high before and low afterwards, constraints on consumption scenarios have put some pressure on the performance of volume and price. On the other hand, while expenses remained high, cost elasticity continued to be released, and overall gross sales have shown improvement. Specifically, in 25Q1-Q3, the beer sector's revenue was 61.726 billion yuan, a year-on-year increase of 1.99%, and the net profit attributable to the parent company was 9.339 billion yuan, a year-on-year increase of 10.43%. In terms of quarters, the revenue of the beer sector in 25Q1/25Q2/25Q3 was 20.043/21.491/20.192 billion yuan, a year-on-year increase of 3.68% / 1.90% / 0.45%, and the net profit attributable to the parent company was 2.519/3.993/2.827 billion yuan, a year-on-year increase of 10.62% / 12.57% / 7.37%. Weakening margin of volume and price, continued cost elasticity, and continued improvement in gross profit margin Since 2025, the sales volume and ton price performance of the leading beer companies have remained weak. On one hand, this is due to a slow recovery in consumer purchasing power, and on the other hand, temporary policies have also affected the consumption scenarios. But in the context of weak beer beta, Yanzhi Beer and Zhupi Beer have continued to show remarkable performance in the growth period. At the same time, cost elasticity continued to be realized, and ton costs continued to decline, maintaining a trend of rising gross profit margin. With a steady rise in gross profit margin and relatively stable expenditure, the overall gross sales have continued to improve, and profitability is still on the rise. Resilience of demand in 2024, focus on scene recovery in 2025 1) The resilience of mass demand and the optimization of products provide strong support for volume and price. Firstly, at the macro level, the disposable income growth rate of the middle-income population is faster, and the performance of social retail and catering in core provinces is significantly better than in top-tier cities like Shanghai and Beijing, indicating that the purchasing power of the masses is relatively strong, providing better support for the demand for mainstream mass-priced beers. Secondly, at the industrial level, although there has been some fluctuation in beer production since May 2025, overall it has continued to show recovery growth; on the other hand, sales growth of middle and high-end categories since 2025 has continued at a faster pace, with single products such as Tsingtao White Beer, Tsingtao Classic, Heineken, Yanjing U8, 97 Pure Beer continuing to perform well. 2) From a defensive perspective, the free cash flow of China's leading beer companies is expected to maintain a high-quality position, and dividend payout ratio and dividend yield are steadily increasing and worth looking forward to. Since 2018, the beer industry has been upgraded, resulting in a substantial increase in net profit margins for leading companies such as CR Beer and Tsingtao Beer, which is the most core reason for the substantial improvement in free cash flow; at the same time, smart large factory construction investments focused on middle and high-end beer categories have gradually decreased from temporary highs. Capital expenditure is expected to return to a stable level, providing a logical support for the continued steady growth of free cash flow. Risk warning: Macroeconomic performance below expectations; food safety issues; intensified competition in middle and high-end beer.