China Resources Beer has exceeded 5 billion yuan in profits in 2023. Hou Xiaohai: Optimistic about the prospects of the domestic beer market this year, and will not engage in promotional wars.

On March 18, CHINA RES BEER (00291) announced its full-year performance for 2023. The financial report shows that in 2023, CHINA RES BEER achieved a comprehensive operating income of 38.932 billion yuan, a year-on-year increase of 10.4%; the company's attributable profit to shareholders was 5.153 billion yuan, an increase of 18.6% year-on-year, marking the first time CHINA RES BEER's annual profit has exceeded 5 billion yuan. In terms of beer business, the company's overall beer sales volume in 2023 increased by 0.5% compared to the same period last year, reaching approximately 11.151 billion liters. Sales volume of premium and above beers was around 2.5 billion liters, an increase of 18.9% compared to the previous year, with brands such as "Heineken," "Snow Fresh," "Old Snow," and "Red Baron" all achieving rapid double-digit growth in sales volume in 2023. The "Heineken" brand of beer achieved a strong growth of nearly 60.0% in sales volume in 2023, successfully achieving the goal of selling 600 million liters of "Heineken" brand beer in the first five-year plan of cooperation with Heineken. During the performance conference held on the same day, the Chairman of the Board of Directors of CHINA RES BEER, Hou Xiaohai, stated that although the beer industry in 2023 was also affected by factors such as the macro economy and intensified market competition, especially in the fourth quarter under pressure, the trend towards high-end beer has not changed. He expressed optimism about the outlook for the domestic beer market in 2024 and revealed that there are no plans for price cuts or promotional wars in the new year. Hou Xiaohai pointed out that in the new year, CHINA RES BEER plans to expand the coverage of Snow Fresh, further consolidate Heineken's share in the 12-15 yuan range, promote the development of superX through street culture, and continue to enrich the product portfolio in the current product structure. On the other hand, Hou Xiaohai believed that there is still a certain gap between the growth of superX and the company's expectations. It was reported that superX achieved a scale of 400,000 tons in 2023, but the growth was relatively small. Therefore, the company plans to further upgrade superX and "start again." "SuperX is still defined as the third major product to be developed in the future, aiming for a product of over a million." Hou Xiaohai also mentioned that the performance of CHINA RES BEER in certain local markets fluctuated. The Shandong market was affected by the price increase of superX, intensifying competition, and the market conditions were not as good as before; the high-end products in the Northeast market grew rapidly, but the entire market and the mid-range product line still faced pressure. In 2023, some new changes occurred in the Chinese beer market. The total beer production above designated size for the whole year was 355.55 million kiloliters, an increase of 0.3% year-on-year, but the main growth came from the first half of the year, especially in the fourth quarter. The Chinese market showed weak beer demand, exceeding market expectations. In the last quarter of the previous year, beer production in China increased by 0.4%, decreased by 8.9%, and decreased by 15.3% in October to December 2023, respectively, on a low base. According to the performances or performance forecasts announced by many beer companies, sales volume or revenue in the fourth quarter of 2023 showed varying degrees of decline. BUD APAC (01876) reported that in the fourth quarter of 2023, benefited from the high-end and brand structure, channel recovery, the revenue in the Chinese market increased by 11.1% for the quarter, but market sales decreased by 3.1%. Chongqing Brewery (600132.SH) expects revenue of 14.81 billion yuan in 2023, up 5.5% year-on-year, and a net profit attributable to the parent company of 1.34 billion yuan, up 5.8% year-on-year. However, the revenue for the fourth quarter alone could be calculated as 1.79 billion yuan, a decrease of 3.8% year-on-year, and the net profit for the quarter also turned negative. It is understood that the domestic beer market is dominated by the "Five Giants" of CHINA RES BEER, Tsingtao Brewery, Budweiser China, Beijing Yanjing Brewery, and Chongqing Brewery (Carlsberg). Unlike Budweiser, Carlsberg, and other foreign brands that naturally carry high-end and international genes, CHINA RES BEER has mainly relied on scale advantages in the past but has tended towards mass consumption in terms of product structure. However, since acquiring Heineken's business in China in 2019, the company has launched a "local + international" brand matrix and started a series of improvements in channels and management. The sales volume of premium and above products has maintained a double-digit year-on-year growth rate since 2020, and the gross sales difference has steadily expanded. In order to transition from "scale priority" to "quality priority," CHINA RES BEER has reduced production capacity and optimized talent to reduce costs and improve efficiency. Since 2017, the company has optimized production capacity, closing the number of breweries from a high of 98 to 62 by the end of 2023. In 2023, the company has ceased operations of two breweries, but has set up an intelligent factory in Wabu City, Anhui. In terms of the liquor business, the company completed the delivery of the transfer of 55.19% equity of Guizhou Jinsha in 2023. The operating income and pre-tax profit of the liquor business in 2023 were 2.067 billion yuan and 130 million yuan respectively. Excluding the impact of the amortization of intangible assets generated by the acquisition of Guizhou Jinsha, the pre-tax profit amounted to 797 million yuan. In 2021, CHINA RES BEER established CR Beer, mainly for the liquor business. The company has integrated and operated the Guizhou Jinsha, Shandong Jingzhi, and Anhui Jinzhongzi liquor brands under CR Beer, which belong to the sauce flavor, aroma flavor, and fragrance flavor, respectively, and target different regional markets. For the liquor business, CR Beer launched several new products in 2023, forming a brand with a different price range product portfolio, while using the channels and sales advantages of beer to assist the liquor business in opening up the market. For example, Jinsha Liquor introduced the low-price product line Jinsha Xiaojiang, and high-end products such as Zhenpin Summary, Song Ci, and Tang Poetry, forming a product matrix with multiple price points. Currently, Jinsha is the most important liquor business of the company. Vice President of CHINA RES BEERHuaren Liquor General Manager Wei Qiang introduced that Huaren faced significant challenges after taking over Jinsha last year. The first challenge was high inventory due to the previous management team blindly pushing inventory and promoting products, and the second challenge was severe price inversion. Therefore, reducing inventory and stabilizing prices are the top priorities for Huaren after taking over.In this regard, China Resources is synchronously governing the price inversion in Wuxi Online Offline Communication Information Technology Co., Ltd. in steps and batches to ensure the profit level of distributors in the future. On the other hand, it takes a combination of measures to promote sales, especially focusing on the flagship product "Essence of Treasure" to carry out market promotion, reduce inventory, and enhance the confidence of distributors. Wei Qiang revealed that starting from July last year, Jinsha Liquor's monthly sales have exceeded the same period, with a cumulative growth of nearly 70% in the second half of the year compared to the same period. In January-February 2024, Jinsha increased by nearly 50% compared to the same period. Specifically for "Essence of Treasure," its year-on-year growth was 16% last year, and the opening rate increased from 14% in the early year to 24%. Citigroup released a research report on March 18, stating a "buy" rating for CHINA RES BEER, believing that the company is still one of the alternative investment targets in the mainland catering industry with good recovery. As the peak beer consumption season from the second quarter to the third quarter is approaching, they view run beer as the preferred choice for this industry, with a target price of HK$55.46.