20161011-高盛-华润啤酒-00291.HK-Leading_China_beer_play,_share_and_margin_upside__reinstate_at_Buy_25页_523kb

China Resources Beer (CRB) Summary

Core Content

China Resources Beer (CRB) has been reinstated with a Buy rating due to its strong position in the Chinese beer market, potential for margin expansion, and ability to gain market share through premiumization and strategic M&A. The 12-month target price is set at HK$20.5, implying a 20% upside from the current price of HK$17.08.

Main Points

• Market Position: CRB is the largest beer producer in China with a 25% market share as of 2015. It is well-positioned to gain 200bps in market share by 2018E.
• Premiumization Strategy: CRB is shifting focus from the mainstream to the mid-end segment, promoting premium products like Snow YongChuangTianYa, which has driven 10% growth in ASP over the past two years.
• Margin Expansion: CRB is expected to expand its operating margin by 100bps from 2016E to 2018E, primarily due to product mix upgrades in its dominant regions, which already contribute >60% of its profit.
• Growth Projections: CRB is expected to deliver 7% sales growth and 15% EPS growth over 2016E-2018E, with 3.5% ASP growth and 4% volume growth.
• Capital for M&A: CRB has US$6.8 billion in capital to support potential M&A activities, which align with its premiumization and market expansion strategies.
• Valuation: CRB is valued at 13X EV/EBITDA, higher than Tsingtao's 12X and global peers' 10-13X, reflecting its strong earnings growth potential and improving returns.
• Industry Outlook: The Chinese beer market is entering a slow growth phase with only 1-2% volume growth expected over the next three years, driven by premiumization and regional penetration.

Key Financials (2016E-2018E)

Key Risks

• Weaker-than-expected ASP growth
• Intense competition
• Over-priced M&A

Strategic Advantages

• Market Share Gain: CRB is expected to increase its market share from 25% in 2015 to 27.5% in 2019, outperforming Tsingtao.
• Premium Segment Growth: The premium segment is expected to grow at 15% CAGR, with CRB's ASP growth outpacing Tsingtao.
• Regional Dominance: CRB is dominant in 7 provinces, where it can leverage its market position to improve margins and sales.
• Cost Control: CRB's selling expenses per litre are 30% lower than Tsingtao, indicating efficient marketing strategies.

Investment Highlights

• Buy Rating: Reinstated due to strong growth potential, margin upside, and strategic positioning.
• Target Price: HK$20.5, reflecting 20% upside.
• Valuation: Higher than peers due to strong earnings and growth prospects.
• M&A Potential: Sufficient capital for strategic acquisitions to support premiumization and market expansion.

Market and Industry Outlook

• Volume Growth: Expected to be 1-2% over the next three years, with a 35% contribution from dominant regions.
• Premiumization: Key growth driver, especially in tier 1 and 2 cities, with 15% CAGR for the premium segment.
• Mainstream Segment: Expected to have contained competition due to regional players focusing on core markets rather than volume growth.

Competitive Landscape

• ABI's Premium Focus: ABI dominates the premium market with 50% market share, but CRB is well-positioned to gain share in the mid-end.
• Tsingtao's Struggles: Tsingtao has been outpaced by ABI in the premium segment, with lower ASP and market share.
• CRB's Positioning: Dominant in mainstream and increasing its mid-end positioning, which is expected to drive growth and margin improvement.

Conclusion

CRB is a strong China beer play with clear growth potential through premiumization, market share expansion, and strategic M&A. Its financial strength and efficient cost management support its long-term growth and margin expansion. Despite challenges in the industry, CRB's position in dominant regions and its focus on higher ASP and product mix upgrades make it an attractive investment.