Summary of China Resources Beer (0291.HK) Earnings Review Company Overview - **Company**: China Resources Beer (0291.HK) - **Market Cap**: HK$91.7 billion / $11.7 billion - **Enterprise Value**: HK$90.3 billion / $11.6 billion - **Current Price**: HK$28.28 - **Target Price**: HK$37.00 - **Upside Potential**: 30.8% [1][3] Key Financial Highlights - **1H25 Results**: Better-than-expected core EBIT driven by cost tailwinds and operational efficiency - **Revenue Forecasts**: - 2025E: Rmb39,222.3 million - 2026E: Rmb40,255.4 million - 2027E: Rmb40,940.2 million [3][12] - **EBITDA Growth**: - 2025E: Rmb10,309.9 million - 2026E: Rmb10,599.3 million - 2027E: Rmb11,128.0 million [3][12] - **EPS Growth**: - 2025E: Rmb1.70 - 2026E: Rmb1.90 - 2027E: Rmb2.05 [3][12] Strategic Insights - **Market Conditions**: The macro situation remains fluid with deflation risks, but the company is optimistic about its execution in premiumization and market share gains - **Beer Segment**: Expected mild acceleration in 2H25 with normalizing policy impacts; management emphasizes Heineken as a key driver for premiumization [1][14] - **Spirits Segment**: Potential overhang into 2H25; management plans to expand mid-range products and enhance channel profitability [1][14] Management Strategies 1. **Policy Normalization**: Signs of normalizing anti-extravagance policy observed in August, with improved run-rates for both beer and spirits [1][14] 2. **Premiumization Focus**: Continued prioritization of Heineken and enhancement of brand equity to drive high-quality growth [1][14] 3. **New Channels Growth**: Rapid growth in new channels (instant delivery, Sam's Club) expected to drive volume and mix with minimal margin challenges [1][14] 4. **Cost Control**: Focus on margin improvement and efficiency gains, including streamlining factories and reducing headcount [1][14] Financial Projections and Changes - **Recurring EPS Forecast**: Revised up by 5-6% for 2025-2027E due to improved beer sales estimates and better gross profit margin outlook [1][15] - **Sales Growth**: Expected 3.2% sales growth and 11.9% recurring EBIT growth in 2025E [1][15] - **Free Cash Flow**: Projected at Rmb5.7 billion in 1H25, with a net cash position of Rmb7 billion [1][14] Valuation Metrics - **P/E Ratios**: - 2025E: 15.2x - 2026E: 13.6x - 2027E: 12.6x [3][8] - **Dividend Yield**: Expected to increase from 2.8% in 2024 to 5.1% in 2027 [3][8] Conclusion - **Investment Recommendation**: The company maintains a "Buy" rating with a target price of HK$37.00, reflecting strong execution in premiumization and operational efficiency despite macroeconomic challenges [1][15]

Investment Rating - The report indicates a preference for Beverage, followed by Pet Foods, Beer, and Dairy, with specific stock ideas highlighted for Eastroc, Tingyi/CR beverage, and Tsingtao-H [9][10]. Core Insights - The industry is experiencing a bumpy recovery in demand, particularly in the spirits, beer, and dairy sectors, with recent policy changes impacting consumption sentiment [1][3]. - Emerging channel shifts, such as instant shopping and discounter channels, are gaining traction, although their overall contribution to the staples universe remains small [1][8]. - Profitability resilience is supported by cost deflation and agile investment strategies, with companies focusing on margin visibility amid muted demand trends [1][9]. Demand Recovery - The demand recovery in Q2 has been lackluster, with notable declines in spirits and dairy products, while beer performance varies across brands [2][11]. - Retail performance has been conservative, with spirits and dairy showing year-over-year declines, particularly in the upper mid-end segments [2][11]. - The beverage sector shows solid volume momentum, although mixed performance is noted across brands [2][11]. Policy Impact - Recent policy tightening on alcohol consumption has created headwinds for spirits and beer companies, particularly affecting high-end catering and on-trade consumption [3][6][34]. - The government has implemented regulations prohibiting the serving of alcoholic drinks during working meals, impacting consumption sentiment during peak seasons [3][6][34]. Emerging Trends - There is a notable shift towards discounter channels and instant shopping platforms, with companies customizing products to meet rising demand [8][10]. - The pet food and beverage categories are experiencing positive product cycles, contributing to growth despite overall market challenges [7][41]. Pricing and Cost Trends - Pricing pressures persist across various sectors, with dairy and beverages introducing more value-for-money products in response to declining raw milk prices [12][36]. - Cost benefits from declining commodity prices are expected to support margin resilience across multiple sectors, including beer and dairy [7][12]. Company Performance - Companies like Yili and Mengniu are facing weak demand trends in UHT liquid milk, while fresh milk and chilled yogurt categories are performing better [38]. - CR Beer and Chongqing Brewery are focusing on in-home consumption and premiumization strategies to counteract weak on-trade demand [35][40]. - The pet food sector remains strong, with companies like China Pet expecting significant year-over-year growth driven by new product launches [41].

Investment Rating - The investment rating for China Resources Beer is "Buy" with a 12-month price target of HK$33.50, representing an upside of 34.0% from the current price of HK$25.00 [9]. Core Insights - China Resources Beer (CRB) has shown continued solid performance in May, driven primarily by Heineken, which sustained over 20% year-on-year volume growth [6][7]. - The overall operating run-rate for CRB's beer volume growth in May was above the volume growth of SD% in 1Q25, with a mild increase in blended average selling price (ASP) and positive margin profiles [6][10]. - Management noted a healthy channel inventory maintained at largely one month of sales, with positive volume growth across mass-market to premium segments [6][10]. Summary by Sections Volume Growth and Performance - CRB's beer volume growth in May trended similarly to April, exceeding the volume growth of SD% in 1Q25 [6]. - Heineken remains the key volume driver, achieving over 20% year-on-year growth in May [7]. - Pure Draft experienced a narrower volume decline year-on-year in May compared to April and 1Q25, while SuperX maintained high single-digit to double-digit growth [7]. Channel and Regional Insights - Management observed a mild recovery in catering channels, particularly in hot pot, BBQ, and trendy restaurants, while nightlife channels remained muted [6][10]. - Performance in East and South China was noted as on track, with slightly better on-trade volume growth in these regions [10]. Instant Delivery and Online Channels - CRB is experiencing strong growth in instant delivery platforms, with growth rates ranging from double-digit to triple-digit percentages from a small base [10]. - Online channels, including instant delivery, currently account for low single-digit to mid-single-digit percentages of total volume, with management indicating that operating profit margins for these businesses are not significantly lower than traditional channels [10].