China Resources Beer (CRB) reported 8.0% YoY net profit decline on 0.8% YoY revenue drop in 2024, missing expectations. Due to solid 1- 2M25 performance, mgmt. is now increasingly confident about full-year profitable growth. We like the Company’s stronger presence in China’s premium beer industry based upon diversified brand/product portfolio and excellent execution. There is some more room for valuation upside.
　　Maintain BUY rating.
　　Key Factors for Rating
　　2H24 sales & profit missed. CRB’s total revenue fell 0.8% YoY to RMB38,635m in 2024. Overall GPM rose 1.3ppts YoY to 42.6%, while core EBITDA decreased 1.0% YoY to RMB9,062m. For beer segment, YoY decrease in total beer sales volume narrowed from 3.4% in 1H24 to 1.2% in 2H24. In 2024, ASP went up 1.5% YoY thanks to improved sales mix - sales volume of sub-premium segment and above saw single-digit% YoY growth. Particularly, sales volume of premium segment and above recorded over 9% YoY growth, with Heineken, Lao Xue and Amstel up nearly 20%, 100% and 100%, respectively, leading to much stronger presence in China’s premium beer market. Beer segment GPM was up 0.9ppt YoY to 41.1% as a result of higher ASP, together with modest cost tailwinds.
　　Revenue from baijiu segment rose 4.0% YoY to RMB2,149m in 2024, missing expectations. Zhaiyao grew 35% YoY in volume terms, and accounted for 70% of the baijiu revenue. Baijiu segment GPM rose 5.6ppts YoY to 68.5% in 2024.
　　Beer sales could return to positive YoY growth in 2025, while the role of efficiency remains key to CRB’s business model. According to mgmt., in 1-2M25, despite a high base, CRB’s sales volume achieved single-digit% YoY growth, where Heineken sustained DD% growth momentum; EBIT margin also improved YoY. Mgmt. is more confident about full-year sales performance, esp. thanks to its diversified brand (product) matrix and superior channel execution, together with lower base comps in the next couple of months. In the meantime, on-premise consumption sentiment has been recovering in China, likely speeding up beer sales turnover in 2025. CRB will stick to its “Three Refinements” cost & expenses strategy to boost profit margins from a long-term perspective.
　　Baijiu segment: DD% YoY sales target for 2025. According to mgmt., five core initiatives include: 1) brand building (e.g. sponsorships, ads in buildings & elevators and transportation hubs, marketing strategy focusing on the place of origin of Zhaiyao); 2) regional market penetration (e.g. in Shandong, Guizhou, Henan); 3) expansion of emerging channels; 4) disciplined inventory control (at 5 months of channel inventory on avg.); and 5) cross-selling in the end market, with strict expenses budget.
　　Key Risks for Rating
　　Risks: 1) intensified market competition; 2) adverse weather conditions; and 3) input cost inflation.
　　Valuation
　　We revised down our top-line forecasts for 2025-26 by 4%, respectively, mainly factoring in 1) increasingly saturated beer market in China in general, and 2) its weaker-than-expected baijiu sales. We also revised down our OPM forecasts for 2025-26 by 2.7/2.9ppts, given higher cost and expenses ratio assumptions. Our new TP is HK$31.10, based on 18.0x 2025E P/E (previous: 15.0x 2024-25E avg.P/E), with a BUY rating.