The high-end of beer opens the second half: expansion, extrusion, and dislocation competition will be more obvious

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In the past few years, the beer industry has reached a consensus on high-end, and wine companies are fighting for high-end. The results lived up to expectations: for the third year in a row, the beer industry's profits increased far more than production and revenues.

In 2023, the high-end of beer is still strong. With the release of the annual reports of listed beer companies, the high-end industry has stronger growth certainty.

However, while the industry is cheering for high-end to lead the industry to recovery, the capital market may not be willing to "pay" for this. The most obvious thing is that the trend of beer stock price diverges from corporate performance, and the industry's top 5 China Resources Beer (00291. HK), Budweiser APAC (01876. HK), Tsingtao Brewery (600600.HK) SH), Yanjing Beer (000729. SZ), Chongqing Beer (600132. SH) stock prices were on a "roller coaster" last year, and the stock prices of Budweiser APAC, Tsingtao Beer, and Chongqing Beer were even cut in half.

A number of industry insiders told Titanium Media APP, "It can be seen from the performance of each company that it is inevitable that beer will continue to be high-end, and it is only the first half of the game." In the second half, the dislocation and differentiation competition of leading enterprises will be more obvious. However, in the era of stock games, we should also pay attention to the continuous upgrading of beer companies' products, cost reduction and efficiency increase. ”

High-end drives performance growth

According to the National Bureau of Statistics, the output of beer in mainland China in 2013 was nearly 50 million kiloliters, a historical peak. Since then, production has continued to decline, falling below 40 million kiloliters in 2017. In 2020, due to the external environment, the output of beer in mainland China was 34.11 million kiloliters, a decrease of 7%, which further amplified the downward trend of beer production.

With the peak trend of production and sales in the beer industry, the beer industry has gradually reached a profit-oriented consensus and accelerated its high-end efforts.

Since 2021, beer production has stopped falling and rebounded. According to the titanium media APP, from 2021 to 2023, the output of beer in mainland China will be 35.62 million kiloliters, 35.69 million kiloliters, and 37.89 million kiloliters respectively, an increase of 5.6%, 1.1%, and 0.8%.

Also since 2021, the mainland beer industry has seen a trend of "both volume and price". According to data from the China Alcoholic Beverages Association, the total profit of beer in 2021 will be 18.680 billion yuan, a year-on-year increase of 38.41%, the total profit in 2022 will be 22.5 billion yuan, a year-on-year increase of 20%, and the total profit will be 26 billion yuan in 2023, a year-on-year increase of 15.1%.

Production rebounded slightly, and profits increased significantly, which the industry attributed to the upgrading of beer premiumization. According to the data, in 2022, the production and sales volume of mid-to-high-end beer in mainland China will be about 15 million-18 million kiloliters, accounting for 35%-40% of the total sales volume of the industry, of which high-end and ultra-high-end products account for about 15%-20%, and the market share of mid-to-high-end beer will increase by more than 10% compared with 2021.

This can also be found at the corporate level. As a highly concentrated industry, the top 5 beer companies contribute more than 80% of the industry's total output and 80% of its revenue. At present, except for Yanjing Beer, which has not yet disclosed its annual report, the remaining four have announced their 2023 results, among them, China Resources Beer, Tsingtao Beer, and Chongqing Beer have all achieved double profit growth in 2023, and the high-end performance of each liquor company is more eye-catching.

For example, in 2023, Budweiser APAC's revenue will be $6.86 billion, an increase of 11.1% year-on-year. Revenue growth was driven by a 4.6% increase in volumes, a 6.2% increase in revenue per hectoliter and a 12.8% year-on-year increase in revenue in China, driven by premiumization in China and India.

At the results meeting, Yang Ke, CEO and co-chairman of the board of directors of Budweiser APAC, said, "The sales volume of the low-end beer market in China has declined, but the growth of the high-end and ultra-high-end beer market is still very good. ”

During the same period, the sales volume of China Resources Beer reached 2.5 million kiloliters, an increase of 18.9% year-on-year, and the sales volume of Tsingtao Beer's mid-to-high-end and above products reached 3.24 million kiloliters, a year-on-year increase of 10.5%.

The premiumization of beer in the first half was less than expected

The performance hit a record high, but the stock price of beer stocks fell endlessly.

Taking Budweiser APAC as an example, its share price once reached HK$27 at the beginning of 2023, and then fluctuated all the way downward, closing at HK$10.76 as of April 11 this year.

Tsingtao Brewery's share price also experienced big fluctuations last year, from a stage high of 125.65 yuan in April last year to about 76 yuan at present, and Chongqing Brewery's share price has fallen unilaterally, and the current stock price of about 67 yuan has fallen by half from the beginning of last year.

Aside from the overall downturn in consumption, the reason for the decline in beer stock prices is also due to the market's low expectations for the premiumization of beer. Guosen Securities Research Report pointed out that the market's expectations for the high-end pace of the beer industry in 2024 are still pessimistic. Hua Chuang Securities also believes that the market's excessive concern about high-end has led to a decline in valuation.

From the analysis point of view, on the one hand, compared with the mainstream of high-end liquor in most overseas countries, the proportion of low-grade liquor in China's beer market is still relatively high. Even if it is a leading enterprise, the current low-end wine is still the bulk of the revenue. For example, in 2023, China Resources Beer's beer business will achieve revenue of 36.865 billion yuan, of which 22% will be sub-high-end and above products, and Tsingtao Beer's mid-to-high-end and above products will account for 40.5% of the total sales.

On the other hand, compared with international brands such as Budweiser APAC, the tonnage price of domestic beer is still low. According to the latest financial report data, in 2023, the tonnage price of China Resources Beer will be 3,306 yuan, the tonnage price of Tsingtao Beer will be 4,172 yuan, and the tonnage price of Chongqing beer will be 4,942 yuan, while the tonnage price of Budweiser Asia-Pacific beer will reach 5,270 yuan as early as 2022, this is because Budweiser Asia-Pacific high-end products account for more than 50%, so its tonnage price has also opened a gap with domestic beer.

In addition, after experiencing the impact of sluggish consumption in 2023, the high-end of some beer companies has shown fatigue. The most typical is Chongqing Beer, whose revenue growth rate of high-end products from 2020 to 2023 fell from 26.28% to 4%, resulting in a slowdown in the growth rate of its revenue and net profit attributable to the parent company.

In addition, China Resources Beer also made it clear that "the growth rate of beer sales in 2023 will be less than expected by 0.5% year-on-year, the growth rate of Brave World SuperX will not be as expected, and the growth in some regions will be less than expected, such as the growth of the Shandong market is not as good as before." ”

However, Hua Chuang Securities believes that more than half of the high-end beer side is the core driver of the leader's medium and long-term profit improvement. Compared with other domestic consumer industries, in the past 20 years, under the wave of inflation, beer has not kept up with the pace of upgrading, and has only accelerated in the past 5-6 years, and there is still a clear "late-mover advantage".

In the second half, expansion and squeezing coexisted

In the first half of the high-end beer, the core action of the enterprise is to intensively launch high-end products and continuously move the price of the product upward. For example, China Resources Beer's three high-end products, Heineken, Xuehua Chunsheng and superX, are positioned in the price band of 12-15, 10-12 and 8-10 yuan respectively, and also launched the liquor with a price of up to 1,199 yuan; Chongqing Beer launched Chongqing Beer Craft Draft Beer and Wusu 1986; Yanjing Beer launched the industry's first hyaluronic acid beer Lion King Boguang Brewing Rose Grape Craft Beer.

Especially in the craft beer sector, it has become a new outlet in the industry, and the penetration rate is expected to further increase. According to the "2023 Taobao Tmall Beer Industry Consumption Trend White Paper", as of 2022, the number of merchants entering the craft beer market has doubled compared with 2022, and the number of various craft beer products and dynamic sales products launched by merchants has also increased by more than 120%, and this growth trend is expected to continue in the next few years.

At present, the number of domestic craft beer brands has increased exponentially, and many of the leading breweries have entered the game. Tsingtao Beer, Budweiser, Yanjing, Chongqing Beer and other leading manufacturers have joined the battle for the craft beer market.

CICC predicts that the craft beer market will reach 134.2 billion yuan in 2025, accounting for 17.2% of the overall beer market.

Xiao Zhuqing, a wine analyst, believes that "the domestic high-end beer market is facing two major challenges, namely imported beer and craft beer, which are aimed at high-net-worth individuals to carve up the consumption scene of high-end beer." Major breweries have bet on the development of new mid-to-high-end beer products, but if the market investment model does not change, it is still difficult to shake the dominance of Budweiser beer in China's high-end beer market. ”

On the whole, the industry generally believes that the last round of high-end beer upgrading is more of an overall structural upgrade of the consumption structure from low-end to mid-to-high-end, and the new round of high-end upgrading will be more detailed in addition to structural upgrades.

In other words, in the second half of the high-end beer, the differentiated competition in the industry and the competition of price dislocation will be more obvious. The report of Huachuang Securities pointed out that beer above 8 yuan will continue to expand, 8-10 yuan instead of 6 yuan has a higher certainty, and more than 10 yuan expansion and extrusion coexist, which needs to be cultivated for a long time, and it is more difficult in the current macro background, but there are fewer players.

In the above price bands, the current TOP5 beer companies have representative products in the town, with obvious advantages, and the product upgrading of the leading enterprises will continue in the second half.

Of course, as the beer industry enters the era of stock competition, it is also a major attraction for beer companies to reduce costs and increase efficiency. In the past few years, beer companies have taken the initiative to remove low-grade products with negative margins, while actively optimizing production capacity.

On the one hand, wine companies have closed many factories, such as China Resources Brewery, which closed at least 26 factories between 2016 and 2021, and Tsingtao Brewery, which said in 2019 that it would close 10 factories within 3-5 years.

On the other hand, at the same time as the closure of the factory, the leading wine companies have also increased the expansion of high-quality production capacity. Recently, on March 29, Tsingtao Brewery's annual output of 1 million kiloliters of high-end specialty beer production base started in Qingdao Brewery No. 5 in Laoshan District, Qingdao City.

It is worth mentioning that the industry predicts that the beer industry will release cost dividends in 2024. In 2024, the cost purchase price of barley is expected to drop by about 10%, and the increase in the recycling rate of beer companies will help reduce the cost of comprehensive packaging materials, and it is expected that the production cost per kiloliter of wine will decrease year-on-year in 2024, which is conducive to profit growth.

However, on the whole, even if there are many uncertain factors at present, the high-end beer is still the first trend in the industry. (This article was first published in Titanium Media APP, author|Yang Huan)