BUD APAC(HK:01876)2024-02-29 16:00Investment Rating - The report maintains a "Buy" rating for Budweiser Brewing APAC (1876 HK) with a target price raised to HKD 15.60, indicating a potential upside of 23.0% from the current closing price of HKD 12.68 [1][2][4]. Core Insights - The fourth quarter performance slightly missed expectations, but the premiumization of beer has shown unexpected resilience. The sales for 2023 met expectations with a year-on-year growth of 5.8%, while normalized net profit grew by 7% to USD 917 million, which was 4% below consensus estimates [1][5]. - The gross margin increased by 35 basis points due to a 6.2% rise in revenue per hectoliter outpacing a 5.0% increase in costs per hectoliter. The commodity prices have shifted from headwinds to mild tailwinds since 2024 [1][5]. - The dividend per share increased by 40% year-on-year, with a payout ratio rising to 82% from 58% in 2022, which is a positive surprise. Future payout ratios are expected to remain at 75% or above [1][5]. Summary by Sections Financial Performance - For 2023, sales reached USD 6.856 billion, reflecting a 5.8% year-on-year increase. The normalized net profit was USD 917 million, with a year-on-year growth of 6.8% [2][5]. - The EBITDA for 2023 was USD 2.023 billion, showing a 4.7% increase compared to the previous year [5][10]. - The average selling price in the Asia Pacific region increased by 11%, while sales volume decreased by 2% [1][5]. Regional Insights - In the Western Asia Pacific region, premium beer showed more resilience than core/value beer, with average selling price/sales volume/sales revenue growth of 11%/-2%/9% respectively in Q4 2023. The strong growth in high-end and super-premium brands was driven by channel recovery and geographic expansion [1][6]. - In the Eastern Asia Pacific region, competition from Japanese brands has led to a decline in sales volume in South Korea, with average selling price/sales volume/sales revenue growth of 11%/-3%/8% respectively in Q4 2023 [1][6]. Future Outlook - The report emphasizes that the premiumization trend in Chinese beer is structural and can withstand macroeconomic cycles. Budweiser is well-positioned to capture a significant share of market growth [1][5]. - The target price adjustment reflects a shift in the earnings per share valuation from 2024 to an average of 2024-25, maintaining a price-to-earnings ratio of 22 times, based on a compound annual growth rate of 17% for earnings per share from 2024 to 2026 [1][5].