: Tsingtao Brewery (00168 HK) 公 司 报 告 : 青 岛 啤 酒 (00168 HK) Satisfactory Top-Line; Disappointing Bottom-Line 销 售 增 长 理 想 但 盈 利 能 力 令 人 失 望 Sunny Kwok 郭 日 升 +852 2509 2642 sunny.kwok@gtjas.com.hk GTJA Research 国 泰 君 安 研 究 Despite satisfactory top line growth, Tsingtao s interim results were not encouraging due to gross margin pressure. Revenue reached RMB13.4 billion in 1H12, up 11.2% YoY on a 11.3% sales volume growth. Gross margin in 2Q12 was 32.2%, up 1.1 ppts QoQ but down 1.2 ppts YoY. The mild growth in gross profit and net finance income were just able to offset rising operating expenses. As such, reported net profit increased by only 1.8% YoY, to RMB1.0 billion in 1H12 but is wholly attributable to a 14.5% growth in 1Q12. Reported net profit actually fell by 6.6% YoY in 2Q12, to RMB557 million. Slowing economic growth in China posts threats to beer production volume growth. China beer production volume growth in June and July slowed to only 3.2% and 0.8%, respectively. However, Tsingtao s top-line growth is expected to keep outperforming industry average on strong brand recognition and the Company is a major beneficiary from industry consolidation. In addition, we still expect gross margin to keep improving QoQ on a YoY fall in malt price and improving product mix. Rating: 评 级 : Accumulate Maintained 收 集 ( 维 持 ) 6-18m TP 目 标 价 : HK$50.00 Revised from 原 目 标 价 : HK$50.00 Share price 股 价 : Stock performance 股 价 表 现 10.0 5.0 % of return HK$45.200 Tsingtao will hold an investor presentation next week. Despite the fact that we may cut our earnings forecast on lower-than-expected gross margin, our ACCUMULATE investment rating on the Company with a TP at HK$50.0 are expected to remain unchanged tentatively. The TP represents 23.5x 2012 reported PER and 21.1x 2013 reported PER. A new company report with updated earnings forecast and investment recommendation will be issued after the investor presentation. 虽 然 青 岛 啤 酒 销 售 增 长 理 想, 但 由 于 毛 利 率 持 续 受 压, 其 中 期 业 绩 不 太 令 人 感 到 满 意 公 司 12 年 上 半 年 收 入 为 134 亿 元 人 民 币, 同 比 增 长 11.2%, 主 要 由 11.3% 的 销 量 增 长 所 推 动 12 年 第 2 季 度 的 毛 利 率 为 32.2%, 按 季 上 升 1.1 个 百 分 点 但 同 比 下 跌 1.2 个 百 分 点 毛 利 仅 轻 微 上 升 加 上 净 利 息 收 入 仅 能 抵 消 营 运 成 本 上 涨 的 压 力 因 此,12 年 上 半 年 报 告 纯 利 按 年 仅 轻 微 增 长 1.8%, 至 10 亿 元 人 民 币, 但 该 增 长 完 全 是 来 自 第 1 季 度 14.5% 的 增 长 所 致 于 12 年 第 2 季 度, 报 告 纯 利 实 际 同 比 下 跌 6.6%, 至 5.6 亿 元 人 民 币 国 内 经 济 增 长 放 缓 已 经 开 始 对 啤 酒 产 量 造 成 负 面 影 响 国 内 啤 酒 产 量 增 长 于 6 月 及 7 月 分 别 放 缓 至 3.2% 及 0.8% 然 而, 我 们 仍 然 认 为 青 岛 啤 酒 品 牌 认 知 度 高, 其 销 售 增 长 于 未 来 或 将 继 续 优 于 行 业 增 速, 公 司 将 受 惠 于 行 业 整 合 再 者, 在 麦 芽 价 格 同 比 下 跌 及 青 岛 啤 酒 产 品 组 合 持 续 优 化 下, 我 们 认 为 公 司 的 毛 利 率 按 季 会 继 续 改 善 0.0 (5.0) (10.0) (15.0) (20.0) (25.0) Feb-12 Aug-12 Change in Share Price 股 价 变 动 HSI 1 M 1 个 月 Tsingtao Brewery 3 M 3 个 月 1 Y 1 年 Abs. % 绝 对 变 动 % (1.6) (5.2) (5.5) Rel. % to HS index 相 对 恒 指 变 动 % (6.7) (6.0) (4.5) Avg. share price(hk$) 平 均 股 价 ( 港 元 ) 45.2 46.4 43.6 Source: Bloomberg, Guotai Junan International. 青 岛 啤 酒 将 于 下 星 期 举 行 中 期 业 绩 推 介 会 虽 然 由 于 毛 利 率 不 及 我 们 的 预 期 导 致 盈 利 预 测 或 需 要 下 调, 我 们 对 公 司 收 集 的 投 资 评 级 及 目 标 价 50.0 港 元 初 步 估 计 不 会 改 变 该 目 标 价 相 当 于 公 司 12 年 及 13 年 报 告 市 盈 率 分 别 为 23.5 及 21.1 倍 于 青 岛 啤 酒 中 期 业 绩 推 介 会 完 毕 后, 我 们 会 更 新 盈 利 预 测 及 投 资 建 议 Year End 年 结 Turnover 收 入 Profit 股 东 净 利 EPS 每 股 净 利 EPS 每 股 净 利 变 动 PER 市 盈 率 BPS 每 股 净 资 产 PBR 市 净 率 DPS 每 股 股 息 Yield 股 息 率 ROE 净 资 产 收 益 率 12/31 (RMB m) (RMB m) (RMB) ( %) (x) (RMB) (x) (RMB) (%) (%) FY10A 19,898 1,520 1.125 18.4 34.1 7.108 5.4 0.180 0.5 17.1 FY11A 23,158 1,738 1.286 14.3 28.1 8.224 4.4 0.260 0.7 16.8 FY12F 25,733 2,297 1.700 32.2 21.3 9.886 3.7 0.300 0.8 18.8 FY13F 29,822 2,559 1.894 11.4 19.1 11.476 3.2 0.350 1.0 17.7 FY14F 33,413 2,963 2.193 15.8 16.5 13.317 2.7 0.450 1.2 17.7 Shares in issue (m) 总 股 数 (m) 1,351.0 Major shareholder 大 股 东 Tsingtao Group 30.5% Market cap. (HK$ m) 市 值 (HK$ m) 61,064.4 Free float (%) 自 由 流 通 比 率 (%) 61.1 3 month average vol. 3 个 月 平 均 成 交 股 数 ( 000) 2,370.2 FY12 gearing (%) 12 年 净 负 债 / 股 东 资 金 (%) 15.9 52 Weeks high/low (HK$) 52 周 高 / 低 50.773 / 38.800 FY11-14 PEG (x) 市 盈 率 / 增 长 率 ( 倍 ) 1.4 Source: the Company, Guotai Junan International. See the last page for disclaimer Page 1 of 7
2Q12 Quarterly and 1H12 Interim Results Review: Slight Gross Margin Disappointment. Tsingtao top-line growth in 2Q12 was in line with our expectation but gross margin disappoints us. We previously expect high cost inventories to be used up in 1Q12 and together with improving product mix, gross margin in 2Q12 is expected to show mediocre QoQ improvement. However, the actual results did not totally support our forecast and gross margin in 2Q12 was 32.2%, up 1.1 ppts QoQ. On the other hand, rising labour costs posted negative impacts to manufacturing overheads as well as operating expenses. Core operating profit went down by 7.2% YoY, to RMB709 million in 2Q12. The weak results were partially offset by a rise in net finance income, which is attributable to the Finance Company set up in May-2011. Both reported and core net profit declined by 6.6% and 4. YoY, to RMB557 million and RMB519 million in 2H12, respectively. Table-1: Quarterly and Interim Results Review Statement RMB million 1H11 1H12 YoY 1Q11 1Q12 YoY 2Q11 2Q12 YoY Revenue 12,050 13,405 11.2% 5,245 5,600 6.8% 6,805 7,806 14.7% COGS (6,840) (7,979) 16.6% (2,953) (3,403) 15.2% (3,887) (4,576) 17.7% Tax expenses (1,056) (1,166) 10.4% (417) (453) 8.7% (639) (713) 11.6% Gross Profit 4,154 4,260 2.6% 1,875 1,744-7. 2,279 2,517 10.5% Distribution exp. (2,376) (2,462) 3.6% (1,121) (949) -15.3% (1,255) (1,512) 20.5% Administrative exp. (495) (565) 14.2% (235) (269) 14.7% (260) (296) 13.7% Core Operating Profit 1,283 1,234-3.8% 520 525 1.1% 764 709-7.2% Investment income 2 6 198. 4 2-45.2% (2) 4 n.a. Finance income, net (2) 84 n.a. (1) 41 n.a. (1) 43 n.a. Core Profit before tax 1,283 1,324 3.2% 522 568 8.9% 761 756-0.7% Other gains, net 108 95-12.2% 46 57 25.4% 63 38-39.4% Profit before tax 1,391 1,419 2. 567 625 10.2% 824 794-3.7% tax (345) (369) 7. (143) (167) 16.6% (202) (202) 0.2% Profit after tax 1,047 1,050 0.3% 424 458 8. 623 592-4.9% Minority interests (57) (43) -24.9% (31) (8) -74.9% (26) (35) 34.4% Reported Profit 990 1,007 1.8% 393 451 14.5% 597 557-6.6% Core Profit * 898 920 2.5% 357 401 12.4% 541 519-4. Gross Margin 34.5% 31.8% -2.7 ppts 35.8% 31.1% -4.6 ppts 33.5% 32.2% -1.2 ppts Core Operating Margin 10.7% 9.2% -1.4 ppts 9.9% 9.4% -0.5 ppts 11.2% 9.1% -2.1 ppts Reported Margin 8.2% 7.5% -0.7 ppts 7.5% 8. +0.5 ppts 8.8% 7.1% -1.6 ppts Core Margin 7.5% 6.9% -0.6 ppts 6.8% 7.2% +0.4 ppts 8. 6.7% -1.3 ppts Source: the Company. * Exclude government grants and other non-core items. Principal Brand for Growth. Sales volume of principal band in 2Q12 reached 12.5 million hl, up 14.3% YoY and accounted for 49.2% of total sales volume, up 0.7 ppts YoY. Sales volume growths of secondary brands have shown some improvement in 2Q12 but we still expect primary brand to be the growth driver of Tsingtao. See the last page for disclaimer Page 2 of 7
Table-2: Key Operation Statistics By Brand Sales Volume and ASP Breakdown By Brand million hl 1H11 1H12 YoY 1Q11 1Q12 YoY 2Q11 2Q12 YoY Sales Volume Principal 20.3 22.0 8.2% 9.4 9.5 1.1% 10.9 12.5 14.3% Others 17.2 19.8 15. 5.6 6.9 23.2% 11.6 12.9 11. Total 37.6 41.8 11.3% 15.0 16.4 9.3% 22.6 25.4 12.6% ASP (RMB / kl) * 3,209 3,207 0. 3,497 3,414-2.3% 3,017 3,073 1.9% Source: the Company. * Include revenue from other operation. Chinese Beer Industry Outlook: Weak Production Growth in June and July. Beer production volume growth correlates with economic growth. The slowdown in China economic growth is highly likely to post negative impact to beer production volume growth. During the first seven months in 2012, YTD beer production volume growth was just 4.1% and adjusted YoY beer production volume growths in June and July were only 3.2% and 0.8%, correspondingly. Despite weak sales growth expectation, gross margin is likely to improve moderately on a YoY fall in malt price. Figure-1: Production Volume Growth of Beer in China Figure-2: China Beer Industry Sales Growth 25% Adjusted YoY Growth YTD Growth 25% YTD Growth - China YTD Growth - Shandong 2 1 5% -5% Jul-12 Figure-3: China Beer Industry Cumulative Gross Margin 32% China Shandong 2 1 5% -5% -1 Figure-4: China Beer Industry Cumulative EBT Margin 14% 12% 1 28% 26% 8% 6% 4% 24% 2% China Shandong 22% See the last page for disclaimer Page 3 of 7
Figure-5: Foreign Malt Price Figure-6: Domestic Rice Price US$ / ton 400 75% RMB / kg 5.6 380 360 340 320 6 45% 5.5 5.4 5.3 25% 2 300 5.2 1 280-5.1 5% 260 Jan-11 Feb-11 Jan-12 Feb-12 Jul-12 Imported Malt Price - LHS Y oy Growth - RHS Source: China Customs, NYSE Liffe, Guotai Junan International. Aug-12-5.0 Jan-11 Feb-11 Jan-12 Feb-12 Jul-12 Aug-12 Domestic Rice Price - LHS Y oy Growth - RHS Source: National Bureau of Statistics of China, Guotai Junan International. Comparable Results with its Peer. Yanjing Beer (000729 CH) also posted its 1H12 results. Tsingtao posted faster volume growth in 1H12, while Yanjing was able to raise ASP to combat raw materials pressure. Both companies gross margin suffered due to high production costs but we may observe a rebound in 3Q12 on a YoY fall in malt price. Table-3: Peers 1H12 Results and Operation Comparison Tsingtao Brewery Yanjing Beer RMB million 00168 HK 000729 CH Sales Volume (mn hl) 41.8 27.9 YoY Growth 11.3% 2.6% ASP (RMB / kl) 3,159 2,281 YoY Growth -0.1% 6.7% Revenue Main Operation 13,206 6,364 YoY Growth 11.2% 9.5% Gross Margin - Main Operation 40.7% 42.5% YoY Growth -2.8 ppts -0.8 ppts Core EBIT 1,234 720 YoY Growth -3.8% 10. Core EBIT Margin 9.2% 10.6% YoY Growth -1.4 ppts 0.1 ppts Reported Profit 1,007 451 YoY Growth 1.8% 2.7% Core Profit 920 431 YoY Growth 2.5% 2.7% Core Margin 6.9% 6.4% YoY Growth -0.6 ppts -0.4 ppts Source: the Companies. See the last page for disclaimer Page 4 of 7
Previous Earnings Forecast Assumptions and Revisions: Higher Malt Price Expectation. Tsingtao will hold an investor presentation next week and key assumptions and earnings forecast will be revised. Tentatively, we may revise upwards our malt price forecast in 2012 due to high inventory levels of the Company. As such, gross margin and earnings will be negatively affected. Table-4: Previous Key Assumptions 2012F 2013F 2014F Sales Volume Growth Principal Brand 10.3% 14. 13.5% Other Brands 8.4% 12. 2.5% Consolidated 9.5% 13.1% 8.7% ASP Growth 1.5% 2.5% 3.1% Unit Cost Growth Packaging 0.5% 2. 1.5% Malt Price (US$) -8. 0. 8. Rice 5. 0. 5. Source: Guotai Junan International. Table-5: Previous Earnings Estimate RMB million 2012F 2013F 2014F Revenue 25,733 29,822 33,413 Gross Profit 8,612 10,061 11,340 Core Operating Profit 2,498 3,021 3,517 Reported Profit 2,297 2,559 2,963 Core Profit * 1,875 2,274 2,723 Gross Margin 33.5% 33.7% 33.9% Core Operating Margin 9.7% 10.1% 10.5% Reported Margin 8.9% 8.6% 8.9% Core Margin 7.3% 7.6% 8.1% Source: Guotai Junan International. * Exclude government grants and other non-core items. ACCUMULATE and TP at HK$50.0. Despite possible earnings cut given weak 1H12 results, we may not downgrade the Company s investment rating nor revise down the TP. This is because Tsingtao s sales growth has kept outperforming the industry and beery industry consolidation is likely to benefit major players such as Tsingtao. Benefit from YoY fall in malt price, which is expected to be realised in 3Q12, Tsingtao s earnings growth will speed up. We tentatively plan to maintain its investment rating at ACCUMULATE and TP at HK$50.0. The TP represents 23.5x 2012 reported PER and 21.1x 2013 reported PER. A new company report with updated earnings forecast and investment recommendation will be issued after the investor presentation. See the last page for disclaimer Page 5 of 7
Financial Statements and Ratios Statement Balance Sheet Year end Dec (RMB m) FY10A FY11A FY12F FY13F FY14F As at Dec 31 (RMB m) FY10A FY11A FY12F FY13F FY14F Sales 19,898 23,158 25,733 29,822 33,413 PPE & CIP 5,794 7,829 9,546 10,976 11,756 yoy growth 10.4% 16.4% 11.1% 15.9% 12. Intangible assets & Goodwill 1,442 3,460 5,275 5,055 4,840 COGS (11,234) (13,417) (14,886) (17,202) (19,252) Others 647 761 666 776 886 Tax expenses (1,663) (2,024) (2,235) (2,559) (2,820) Non-current assets 7,882 12,051 15,486 16,806 17,482 Gross Profit 7,000 7,717 8,612 10,061 11,340 yoy growth 13. 10.2% 11.6% 16.8% 12.7% Inventories 1,942 2,718 2,163 3,021 3,308 Distribution expenses (3,918) (4,415) (4,790) (5,543) (6,211) Trade receivables 90 88 158 169 197 Administrative expenses (1,079) (1,184) (1,324) (1,498) (1,613) Other receivables 202 226 150 170 220 Core Operating Profit 2,003 2,118 2,498 3,021 3,517 Cash and cash equivalents 7,598 6,108 6,602 7,109 7,276 yoy growth 17.1% 5.7% 17.9% 20.9% 16.4% Others 63 444 300 350 400 Share of JVs & Associates 10 4 6 10 11 Current assets 9,895 9,583 9,373 10,819 11,401 Finance income, net (5) 36 60 65 166 Core Profit before tax 2,008 2,159 2,564 3,096 3,694 Trade payables 1,263 1,662 1,795 2,164 2,267 Other gains, net 115 296 566 383 323 Other payables 3,764 4,578 5,068 5,397 6,114 Profit before tax 2,123 2,455 3,130 3,479 4,017 Borrowings 196 163 200 1,700 200 tax (539) (657) (782) (870) (1,004) Others 793 753 800 850 900 Profit after tax 1,584 1,798 2,347 2,609 3,013 Current liabilities 6,016 7,156 7,863 10,110 9,481 Minority interests (64) (60) (50) (50) (50) Reported Profit 1,520 1,738 2,297 2,559 2,963 Borrowings 1,275 1,789 1,920 500 0 yoy growth 21.6% 14.3% 32.2% 11.4% 15.8% Others 766 1,412 1,210 950 800 Core Profit * 1,373 1,490 1,875 2,274 2,723 Non-current liabilities 2,042 3,201 3,130 1,450 800 yoy growth 23.1% 8.5% 25.8% 21.3% 19.7% Minority interests 117 166 510 560 610 Reported EPS (RMB) 1.125 1.286 1.700 1.894 2.193 Core EPS (RMB) 1.016 1.103 1.388 1.683 2.015 Shareholders' equity 9,603 11,110 13,356 15,504 17,992 DPS (RMB) 0.180 0.260 0.300 0.350 0.450 BPS (RMB) 7.108 8.224 9.886 11.476 13.317 Cash Flow Statement Financial Ratio Year end Dec (RMB m) FY10A FY11A FY12F FY13F FY14F FY10A FY11A FY12F FY13F FY14F Profit after tax 1,584 1,798 2,347 2,609 3,013 Gross Margin (%) 35.2 33.3 33.5 33.7 33.9 Depreciation 510 571 822 1,020 1,169 Core Operating Margin (%) 10.1 9.1 9.7 10.1 10.5 Amortisation 46 123 186 220 215 Reported Margin (%) 7.6 7.5 8.9 8.6 8.9 Others 1,144 (619) 1,466 (142) 442 Core Margin (%) 6.9 6.4 7.3 7.6 8.1 Operating Cash Flow 3,284 1,872 4,820 3,707 4,839 ROE (%) 17.1 16.8 18.8 17.7 17.7 ROA (%) 9.3 8.8 9.9 9.8 10.5 CAPEX (1,278) (4,210) (4,000) (2,500) (2,000) Others 505 796 (32) (250) (150) Inventory turnover days 62.1 63.4 60.0 55.0 60.0 Investing Cash Flow (773) (3,414) (4,032) (2,750) (2,150) Account receivable days 1.7 1.4 1.8 2.0 2.0 Account payable days 37.7 39.8 42.5 42.0 42.0 Change in bank borrowings (0) 389 166 80 (2,000) Cash conversion cycle 26.0 25.0 19.3 15.0 20.0 Dividends paid (216) (243) (351) (405) (473) Others (44) (91) (114) (120) (47) Current ratio (x) 1.6 1.3 1.2 1.1 1.2 Financing Cash Flow (261) 55 (299) (445) (2,520) Quick ratio (x) 1.3 1.0 0.9 0.8 0.9 Change in cash 2,251 (1,487) 489 512 169 gearing (%) Foreign exchange effect (3) (3) 5 (5) (3) interest cover (x) 411.1 Cash Cash 15.9 14.2 1.1 Cash balance at year end 7,598 6,108 6,602 7,109 7,276 Payout ratio (%) 16.0 20.2 17.6 18.5 20.5 Source: the Company, Guotai Junan International. * Exclude government grants, bargain purchase as well as other non-recurring items. See the last page for disclaimer Page 6 of 7
Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to ; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812) and China City Railway Transportation Technology Holdings Company Limited (08240), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction. 2012 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queens Road Central, Hong Kong. Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Website: www.gtja.com.hk See the last page for disclaimer Page 7 of 7