Our channel checks indicated Tsingtao’s 3Q sales likely stand at 10%+, driven not only by hot weather but also festive demand in which its canned products were perceived as ideal gifts during the mid-autumn festival. Of note, the product has been seeing strong demand growth thanks to stay- home consumption amid the pandemic over 1H. Interestingly, a seemingly weakening spending propensity has nonetheless facilitated consumption rotation from baijiu to beer over dinners and other social gatherings.Coupled with a relatively easy comp last year, we see grounds for another solid quarter.
　　2H outlook remains solid, when Tsingtao’s management continues to push for mix upgrade by phasing-out mass-market regional brands. Input costs are unlikely to be fully mitigated when recently procured raw materials have already kicked-in and impacted production costs. That said, given a low comp and a sequentially easing input price trend, we expect 2H GPM to healthily benchmark to that of 2H20, particularly when promotional efforts throughout Jul-Aug have been disciplined. Separately, selling expense has been on the rise given more resources were devoted for summer promotion.
　　1H results were in line with us but were HSD above consensus, thanks　to better-than-expected GPM as a result of strong premiumization trajectory.
　　i) 5% top line growth was slower than 7% CRB given a slower ASP uptick. Premium brands in general was up by a HSD, despite a few of them were weighed by lockdowns.
ii) Meanwhile, a 41% GPM was well supported when input cost pressure was mitigated.
　　Earnings change and valuation. Our earnings assumptions for 2022/23E are little changed. Our revised TP is based on 15.0x roll-forward mid-23E EV/EBITDA which still represents +1sd above long-term average since 2018.