HAITONG INT'L: Volume and price expected to increase in the 26th year, beer industry competitive landscape differentiated

HAITONG INT'L has released a research report stating that the beer industry will experience a mild recovery by 2025, with leading domestic brands increasing their market share and profitability simultaneously. Cost advantages and operational efficiency optimization will be the core drivers of profit improvement, leading to further differentiation in performance among companies. In the medium term, industry fundamentals are highly linked to the macroeconomic environment. If consumer demand continues to improve marginally, the dividends from product upgrades are expected to continue, driving industry valuation to a recovery window. In the long term, the beer industry has significant economies of scale and stable cash flow properties. Apart from investment opportunities brought about by the restructuring of the competitive landscape, companies that innovate in product, internationalization, and diversification also have potential for value reevaluation. In summary, HAITONG INT'L believes that leading companies with strong channel barriers, product upgrade advantages, and forward-looking internationalization and diversification strategies will benefit significantly. Key companies to watch include Tsingtao Brewery (600600.SH), CHINA RES BEER (00291), and Beijing Yanjing Brewery (000729.SZ). HAITONG INT'L key viewpoints are as follows: - Review of 25-year performance The industry as a whole has maintained stable sales volume and pricing, experiencing a mild recovery. Total output of large-scale enterprises in the year was 35.36 million hectoliters (down 1.1% year-on-year), with a CAGR of about -2.8% compared to the peak in 2013. Most publicly listed companies achieved stable growth of 1-2% in sales volume over the 25 years. The market structure is different, with leading domestic brands steadily increasing their market share. Due to changes in the macroeconomic environment and shifting consumer preferences, the industry's competitive landscape continues to adjust. Some companies have seen their market share decrease due to relatively single-channel layout and inadequate product adaptability, while domestic leaders have increased their market share through market barriers and product upgrades. Cost advantages and efficiency improvements resonate with each other, with profit growth outpacing revenue growth. Decreases in barley and glass prices have lowered per ton costs, resulting in a general increase in gross margin of 1-2 percentage points. Most companies have reduced their expense rates by less than 1%, reflecting their efforts to improve cost efficiency through refined operations in the context of slowing revenue growth. - Industry in a period of change The reconfiguration of emerging channels has changed the competition dynamics, with the share of immediate consumption channels dropping from over 55% before the pandemic to around 40%. New channels such as instant retail and snack retailers are rapidly rising, prompting companies to expand their presence and operations in these new channels. The traditional model of using expenses to seize market share is no longer sustainable. The core of industry competition has shifted towards improving operational efficiency and reaching consumers accurately at the end. Rational consumer preferences are driving product innovation, and the growth path driven by price increase is facing bottlenecks. Companies are working to create a diversified product matrix that adapts to various consumer scenarios while simultaneously developing specialty beers and non-beer categories to cultivate new growth points. The optimization of corporate governance and cash flow management, frequent changes in industry leadership, a more practical management style, and continued improvement in organizational and operational efficiency. Companies have sufficient cash flow, with a focus on returning funds to shareholders and making long-term investment plans. - Industry outlook for 2026 Q1 has seen continued stability in overall sales volume, with a differentiated market structure. Each company has its own focus on channel layout and product strategy. Leading companies rely on market barriers and product structure upgrades in their base markets to continue outperforming the industry. Full year industry sales volume is expected to maintain low single-digit positive growth. For the full year, three catalysts will resonate: 1) The low base effect of external factors such as food delivery wars and policies in 2025 will lay a strong foundation for the recovery season in 2026; 2) The landing of sporting events such as the World Cup is expected to significantly boost demand for immediate consumption channels; 3) If market expectations of CPI rebound and warmer dining channels are met, it will help increase industry ASP and potentially usher in a "double Davison." Overall, the risks to costs are manageable, with core raw material and packaging costs such as barley, glass, and aluminum cans partially hedged. Geopolitical conflicts have limited impact, with aluminum can costs being the most volatile, expected to rise by a low single-digit percentage for the full year. Risk warning: Economic recovery falls below expectations, rise in raw material costs, food safety issues.