Tsingtao’s solid 1Q and takeaway from briefing again convinced us that the Company is dedicated to its premiumization effort along with a more cost- effective operation. Despite market talks about soft beer sales in April, Tsingtao’s low-teen sales growth of the month was encouraging, considering also the mid- double-digit volume growth in Classic & above. Looking ahead, 2Q is an important quarter for beer consumption, as the quarter’s restocking momentum typically provides a good gauge to peak season demand, and therefore any earnings upside for Tsingtao. We think this explains recent profit-taking on shares, and expect the trend to continue until signs of a strong 2Q emerge. Despite this, we remain Buyer of Tsingtao and rate it as our preferred pick along with CR Beer （291HK, Buy） within our coverage universe.
　　2Q outlook. 1Q momentum has largely extended into April with low-teen sales growth. Approaching the end of May, we should be able to obtain incremental information about the demand for Dragon Boat Festival and more importantly, for the upcoming summer strong season. For now, we assert a similar, if not better, growth trajectory for the quarter as our base case scenario. Long term, Tsingtao’s management targets to maintain double-digit sales growth thanks to sustainable drivers such as price hike, mix upgrade and cost initiatives.
　　A re-ramped product/ regional strategy. Tsingtao plans to reshape its　product structure to diamond-shaped, having mass market products （mainly Classic） contributing a large part of the mix, followed by that of super- premium. Low end SKUs will represent the smallest shares. By region, Tsingtao will maintain its lead in Shangdong, Shaanxi, Gansu, and will look for regaining market share in weaker regions such as Guangdong, Zhejiang and Fujian.
　　Earnings change. To reflect the above, we fine-tune our 2023/24E revenue and GPM estimates. In particular, we raise our gross profits by 3-6%, on the assumption that a low packaging cost could only drive up COGS by a LSD YoY. We further lower our SG&A ratio by 0.5pp. These together lead to a 8- 14% increase in our EBITDA estimates for the same period. For now, as we introduce our 2025E forecasts, and we forecast a 9% revenue CAGR between 2022-25E with an average 1.0pp GPM expansion per annum.
　　Valuation. Our revised TP is still based on 15.0x roll-forward end-23E EV/EBITDA which still represents +1sd above long term average since 2018.