\u3000\u3 Jointo Energy Investment Co.Ltd.Hebei(000600) Tsingtao Brewery Company Limited(600600) 600)
1q22 net profit was slightly better than expected: due to the impact of the epidemic in Shandong Province, the sales of Tsingtao Beer fell sharply in March. This also reduced the overall sales volume of Tsingtao beer 1q22 by 2.8%, and the revenue increased by only 3%, which is basically in line with our expectations. It is gratifying that the sales volume of the main brand of Tsingtao beer 1q22 increased by 5% year-on-year, which promoted the further improvement of the company’s overall sales structure. This also helped the overall unit price of 1q22 increase by 6.1% year-on-year. In early January, the company raised the price of Qingdao classic and 1903 products and optimized the product structure, which basically offset the pressure on the price of raw materials and maintained the company’s 1q22 gross profit margin stable year-on-year. The company 1q22 significantly reduced the sales expenses (down 5% year-on-year), the sales expense rate decreased by 120bps year-on-year, and the core operating profit margin expanded by 120bps year-on-year. This also made the net profit of Tsingtao beer 1q22 increase by 10% year-on-year, higher than the market expectation. We believe that Tsingtao Beer’s performance is not worth the excessive excitement of the market, because although reducing market investment can increase profits in the short term, it is unsustainable. For beer brands, continuous market investment is an important driver to maintain brand competitiveness.
March was greatly affected by the epidemic and improved month on month in April: the Shandong market accounted for 57% of the overall revenue of Tsingtao beer in 2021. Therefore, the repeated epidemic in Shandong had a great impact on the sales volume of Tsingtao beer in March (it is estimated that it decreased by more than 20% year-on-year), which also offset the strong growth of sales volume from January to February. In addition, Shanghai is also one of the important markets of Tsingtao beer. We estimate that Tsingtao Beer accounts for about 50% in Shanghai, and Shanghai accounts for 4-5% of the overall sales of Tsingtao beer. Therefore, the strict epidemic control in Shanghai since the end of March has made Tsingtao Beer worse. Although it is greatly affected by the epidemic in the short term, with the gradual mitigation of the epidemic in Shandong Province, we estimate that the sales performance of Tsingtao beer in April will be greatly improved compared with that in March.
Raise H shares to “buy” and maintain the “hold” rating of a shares: we basically maintain the forecast of Tsingtao Beer revenue, but considering the company’s active control over expenses, we raise the forecast of 2022 / 2023 net profit by 3% / 6%. Tsingtao Beer Hong Kong shares are currently trading at 10x2022eev / EBITDA, with a 20% discount from the valuation of international brands. Although Tsingtao Beer’s growth potential and high-end space are not as good as its main competitors, its current valuation level of Hong Kong stocks is undoubtedly attractive to Chinese beer players with a long brand and stable fundamentals. We used 13xev / EBITDA (basically consistent with the average valuation of international brands) to value Tsingtao Beer H shares and obtained the target price of HK $74.6. Therefore, we upgraded H shares to “buy”. We use 22x2022eev / EBITDA (70% premium relative to H shares) to value Tsingtao Beer A shares, and get the target price of 91.2 yuan. Like other beer companies, any sign of epidemic relief will benefit Tsingtao Beer’s share price.
Investment risk: 1) the price increase of raw materials is higher than expected; 2) Heineken’s growth rate was slower than expected; 3) The epidemic continues to affect the current drinking channels; 4) Market competition intensifies.
