Core Insights - Fujian Putian, known as the "Beer City of the World," is a significant beer industry development area on the southeast coast of China, centered around Budweiser Snow Beer, which has established a complete beer industry chain [1] - Budweiser Snow Beer is the largest single production facility for Budweiser Group globally, producing the most international brands, and operates as a world-class low-carbon smart factory [1] - The Changcheng Huaxing Glass Factory, covering approximately 500 acres, has four production lines that produce about 140 million beer bottles monthly, with 60% of the products supplied directly to Budweiser Snow Beer [1] Industry Overview - The beer market is entering its peak sales season during the summer, with Budweiser Snow Beer Company’s smart workshop operating at full capacity [1] - Budweiser Snow Beer serves as the production base for eight internationally recognized brands, with an annual production capacity of 2 million tons [1] - The factory features a Budweiser China Beer Museum, which is one of the first industrial tourism demonstration bases in Fujian Province, combining smart factory tours, beer culture exhibitions, and craft beer experiences, enhancing the industrial tourism aspect of Putian's beer industry [1]

Core Insights - The CEO of Budweiser Group, Michel Doukeris, stated that the company's performance in the Chinese and Brazilian markets for Q2 was below expectations, primarily due to a decline in the on-premise channel [1][5][7] - Budweiser's sales in China decreased by 7.4% in Q2, with revenue down by 6.4%, although revenue per hectoliter increased by 1.1% due to a positive brand mix [5][10] - The overall beer market in China is experiencing a slowdown, with Budweiser's performance lagging behind the industry average, but the company remains optimistic about future recovery [7][10] Company Performance - Budweiser Group's total volumes decreased by 1.9% in Q2, while revenue increased by 3% and EBITDA grew by 6.5% [10][19] - The underlying EPS increased by 8.7% in USD terms, and revenue per hectoliter rose by 4.9% [10][19] - Despite selling fewer beers, Budweiser's revenue and profits have grown, indicating effective cost management and pricing strategies [9][10] Strategic Adjustments - Budweiser is focusing on rebalancing its on-premise and off-premise channel strategies in China, with an emphasis on enhancing capabilities in the off-premise channel [12][14] - The company is investing in lower-priced products to better align with off-premise consumer demand, shifting from a high-end focus [17][19] - Budweiser is collaborating with wholesalers to improve the sales team's capabilities and expand distribution in underdeveloped regions [19] Market Outlook - The non-on-premise channel currently accounts for about 50% of Budweiser's business in China, which is below the industry average of 60%, indicating significant growth potential [17] - The company anticipates that the impact of current market challenges will diminish over time, leading to a more positive sales trend in the industry [7][10] - Budweiser's management believes that the ongoing investments in the off-premise channel will yield substantial returns as the market evolves [14][19]

Core Viewpoint - Budweiser APAC is shifting its strategic focus towards non-drink channels, demonstrating operational resilience and long-term growth potential despite market challenges in the first half of 2025 [1] Financial Performance - In the first half of 2025, Budweiser APAC reported revenue of $3.136 billion, a decrease of 5.6% year-on-year, but achieved a 0.5% year-on-year increase in revenue per hectoliter due to diversified brand matrix and refined revenue management in the eastern region [1] - As of the end of the first half of 2025, the company had a net cash reserve of $2.4 billion, indicating a robust asset-liability structure [1] Strategic Focus - The company aims to enhance its market share in non-drink channels, leveraging its distribution network to expand the presence of high-end and super high-end products [2] - Budweiser APAC's CEO emphasized the importance of focusing on controllable factors, including continued investment in flagship brands and accelerating the expansion of non-drink channels [1][3] Market Trends - The non-drink channel is steadily increasing its share of overall sales and revenue, contributing to an improvement in EBITDA profit margins [1] - The non-drink channel currently accounts for approximately 60% of the total industry scale in the Chinese market, with significant growth potential as consumer disposable income rises [1] Regional Performance - Budweiser APAC's operations in India are experiencing strong growth, with double-digit increases in sales and revenue for high-end and super high-end product lines [3] - The company's performance in South Korea is outperforming industry averages in both drink and non-drink channels, benefiting from effective revenue management measures [3] Collaboration and Innovation - The company is actively developing new primary and secondary distributors to expand its sales network and is collaborating with distributors to invest in expanding the non-drink sales team [2] - Budweiser APAC is focusing on product innovation and packaging design to enhance consumer drinking experiences [3]

Core Viewpoint - Budweiser APAC reported a decline in revenue and net profit for the first half of 2025, indicating challenges in the beer market, particularly in China, while showing signs of marginal improvement in the second quarter [1][2]. Financial Performance - For the first half of 2025, Budweiser APAC's revenue was $3.136 billion, a decrease of 5.6% year-on-year; net profit was $409 million, down 24.4%; total sales volume was 4.363 billion liters, a decline of 6.1% [1]. - The second quarter showed a smaller revenue decline of 3.9% compared to a 7.5% decline in the first quarter, indicating a trend of marginal improvement [1]. - Average revenue per hectoliter increased by 0.5% year-on-year for the first half, with a 2.4% increase in the second quarter, contrasting with a 1.5% decline in the first quarter [1]. Regional Performance - In China, sales volume decreased by 8.2% and revenue by 9.5% in the first half, with a 7.4% decline in sales volume and a 6.4% decline in revenue in the second quarter [2]. - The Indian market experienced double-digit growth in revenue and sales volume for high-end products, continuing to drive overall growth [2]. - In South Korea, sales volume showed a high single-digit decline, while revenue also decreased significantly due to reduced sales volume, although average revenue per hectoliter saw low single-digit growth [2]. Inventory Management - Inventory adjustment was a key operational focus for Budweiser APAC in the first half, with proactive measures taken to align inventory levels with market conditions [3]. - The company reported lower inventory levels and days compared to the previous year, indicating effective inventory management [3]. Strategic Focus - The new CEO and sales leadership are undergoing structural and strategic adjustments, facing challenges in channel transformation, management efficiency, and external risks [3]. - The company plans to focus on controllable areas, increasing investment in brands like Budweiser and Harbin, while expanding non-immediate consumption channels and enhancing execution [3]. - Analysts suggest that the company may see marginal recovery in the Chinese market in the second half, but emphasize the need for time to build brand influence and establish non-immediate consumption channels [3].

Core Viewpoint - CICC has downgraded Budweiser APAC's EBITDA forecasts for 2025 and 2026 by 6% to $1.679 billion and $1.771 billion respectively, due to weak demand in the China region [1] Group 1: Financial Performance - The company's 2Q25 performance met market expectations, with revenue, sales volume, average selling price (ASP), and EBITDA showing year-on-year changes of -3.9%, -6.2%, +2.4%, and -4.5% respectively [2] - In the China market, revenue, sales volume, ASP, and EBITDA experienced year-on-year declines of -6.4%, -7.4%, +1.1%, and -4.0% respectively [2] Group 2: Regional Insights - In the China region, sales volume decreased by 6.4% year-on-year, but the decline rate narrowed, attributed to inventory reduction and channel structure adjustments [3] - ASP in the China region increased by 1.1% year-on-year, benefiting from product mix optimization, with high-end and super high-end products gaining a larger share in non-immediate consumption channels [3] - The Indian market continued to show double-digit growth in revenue, while the Korean market faced pressure due to preemptive stocking and market weakness, leading to a decline in EBITDA margin [4] Group 3: Future Outlook - For 2H25, the company expects stabilization and gradual improvement, with a focus on dealer interests in the China region and low channel inventory [5] - The company plans to expand non-immediate consumption channels and invest in high-end products in Korea and India to enhance profitability [5] - Cost-wise, raw material prices are expected to remain low, which may support profit margin recovery [5]

Core Viewpoint - CICC has downgraded Budweiser APAC's EBITDA forecasts for 2025 and 2026 by 6% to $1.679 billion and $1.771 billion respectively, due to weak demand in the China region [1] Group 1: Financial Performance - 2Q25 results met market expectations with revenue, volume, ASP, and EBITDA showing year-on-year changes of -3.9%, -6.2%, +2.4%, and -4.5% respectively [2] - In China, revenue, volume, ASP, and EBITDA saw declines of -6.4%, -7.4%, +1.1%, and -4.0% year-on-year [2] Group 2: China Market Analysis - In 2Q25, China's sales volume decreased by 6.4% year-on-year, but the decline rate narrowed compared to previous quarters, attributed to inventory reduction and channel structure adjustments [3] - The ASP in China improved by 1.1% year-on-year due to product mix optimization, with high-end and super high-end products gaining a larger share in non-immediate consumption channels [3] Group 3: Regional Performance - The Indian market continued to show double-digit growth in 2Q25, while the Korean market faced challenges due to preemptive stocking and market weakness, leading to a decline in sales volume [4] - In the Asia-Pacific East region, revenue, volume, ASP, and EBITDA experienced year-on-year declines of -8.4%, -10.4%, +2.2%, and -26.5% respectively [4] Group 4: Outlook for 2H25 - The company expects stabilization and gradual improvement in performance, with a focus on dealer interests in China and low channel inventory levels [5] - The company plans to continue investing in high-end products in Korea and leverage high-end and super high-end products in India for growth [5] - Cost expectations for barley and other raw materials remain low, which may support profit margin recovery [5]

Group 1: Market Trends - The beer market is thriving as consumer preferences shift from traditional spirits like baijiu to beer, especially among younger generations born in the 1990s and 2000s [1][6][8] - The overall sales of high-end baijiu have significantly declined, with some retailers reporting daily revenues dropping from tens of thousands to just over a hundred yuan [2][3] - The white liquor market is experiencing a downward trend, with production volume decreasing from 13.58 million kiloliters to 4.145 million kiloliters, a cumulative decline of 69.5% from 2016 to 2024 [3][4] Group 2: Consumer Behavior - Consumers are increasingly favoring lower-priced baijiu options, with a notable shift towards self-consumption and family-oriented drinking rather than business-related consumption [3][4][5] - The most popular price range for baijiu is now between 100 to 300 yuan, reflecting a preference for affordable options among consumers [4][5] - The trend of home drinking has led to a rise in the popularity of "staple liquor," with consumers purchasing in bulk for personal use [7][8] Group 3: Industry Dynamics - The beer industry is seeing a robust growth trajectory, with major brands capturing approximately 70% of the market share, and companies like Yanjing Beer reporting a 94.3% increase in net profit [6][8] - The market for craft and specialty beers is expanding, driven by younger consumers' desire for diverse and innovative options [6][8] - The competitive landscape of the beer market is solidifying, with leading brands maintaining stable growth in sales, revenue, and net profit [6][8]

Core Viewpoint - Budweiser APAC is facing significant challenges as evidenced by declining sales, revenue, and net profit in both the first quarter of 2025 and the full year of 2024, indicating pressure on the company's growth strategy [1][4][5] Financial Performance Summary - In Q1 2025, total sales volume was approximately 1.974 billion liters, a decrease of 6.1% year-on-year; revenue was $1.461 billion, down 7.5%; gross profit was $745 million, also down 7.5%; and net profit was $234 million, reflecting an 18.47% decline [1] - For the full year 2024, revenue was $6.246 billion, a decline of 8.9%; net profit was $750 million, down 14.77%; and sales volume was 8.48 billion liters, a decrease of 8.8% [1] - The stock price of Budweiser APAC has dropped over 40% since 2024, currently trading just above 8 HKD [1] Market Dynamics - The Chinese market is crucial for Budweiser APAC, contributing over 75% of revenue in 2022, but has recently shown a "volume and price drop" due to weak domestic beer consumption [2] - In 2024, the Chinese market saw a sales volume and price decline of 11.8% and 1.4% respectively, with a market share decrease of 1.49 percentage points [2] - Conversely, the Indian market has shown strong growth, with revenue growth close to 20% in both 2024 and Q4, positioning it as one of the top four global markets for the company [2] Competitive Landscape - Budweiser APAC's high-end market share in China has declined from nearly 50% in 2015 to around 40% currently, as local brands gain market share [6] - The competition in the high-end beer segment has intensified, particularly in the 8 RMB price range, which has become a key battleground for market share [7][8] - The overall beer production in China decreased by 0.6% in 2024, while the high-end beer market is expected to reach 280 billion RMB, accounting for 40% of the total market [8] Strategic Adjustments - The new CEO, Cheng Yanjun, is focusing on strengthening the Budweiser and Harbin beer brands and optimizing supply chains while deepening local market engagement [6][10] - Budweiser APAC is shifting its strategy to include more competitive pricing in the 8-10 RMB range to enhance its market position [8][9] - Future strategies will likely involve product innovation, channel diversification, and enhanced supply chain efficiency to address the challenges posed by local brands and changing consumer trends [9][10]

Investment Rating - The industry rating is maintained as "Outperform" [7] Core Insights - The food and beverage sector has shown a recovery with a weekly increase of 1.77%, outperforming the Shanghai Composite Index which decreased by 2.22% [25] - The liquor segment is expected to see valuation recovery as major companies focus on channel optimization and marketing strategies ahead of the upcoming political meetings [2][13] - The beer and beverage sectors are anticipated to benefit from improved consumer demand in 2025, driven by promotional policies and a recovery in the restaurant and nightlife sectors [3][14] Summary by Sections Market Performance Review - The food and beverage sector saw a weekly increase of 1.77%, while the Shanghai Composite Index fell by 2.22%. Specific segments included: - Liquor: +1.64% - Dairy: +3.00% - Meat products: +3.52% - Pre-processed foods: +2.37% - Other alcoholic beverages: +0.59% - Beer: +2.84% - Soft drinks: +2.42% - Snacks: +4.30% [25] White Liquor Insights - The white liquor segment increased by 1.64%, with companies like Jiuziyuan and Yingjia Gongjiu showing significant gains. The current valuation is considered reasonable and low, with a PE-TTM of 19.50X [2][13] - Major liquor companies are focusing on channel management and marketing to rebuild confidence in the market, especially as the political meetings approach [2][13] Beer and Beverage Insights - The beer segment increased by 2.84%, with Budweiser Asia announcing a 7% increase in dividends and a management change. The Chinese market for Budweiser is projected to decline by 11.8% in 2024, but strategies are being implemented to enhance market share [3][15] - The beverage sector, including brands like China Red Bull, reported a slight revenue increase of 1.3% in 2024, reaching 21.09 billion yuan [3][17] Consumer Goods Insights - The snack segment led the market with a notable increase, while dairy products also performed well with a 3.00% rise. The report emphasizes three investment themes: "restaurant supply," "overseas expansion," and "raw milk turning point" [3][16] - The overall consumer goods sector is expected to benefit from lower inventory levels and seasonal demand as the market recovers [5][24] Investment Recommendations - Recommended stocks include leading liquor brands such as Moutai, Wuliangye, and Shanxi Fenjiu, as well as consumer goods companies like Yili and Mengniu in the dairy sector [5][24] - The report suggests focusing on companies with strong fundamentals and reasonable valuations, particularly in the consumer goods sector, which is expected to show strong elasticity in 2025 [5][24]