Bud APAC reported 11.2% YoY decline in normalised EBITDA on 7.5% YoY decline in revenue in 1Q25 in local currency terms. Soft consumer confidence and industry cycle continued to weigh on beer consumption in China (but YoY decline has narrowed), while solid growth trajectory stayed intact in South Korea and India. We lowered our TP to HK$9.40, based on an unchanged 20.0x 25E P/E. Maintain BUY rating.
　　Key Factors for Rating
　　Sales basically in-line and net profit slightly missed. In 1Q25, Bud APAC’s reported revenue and shareholders’ profit fell 11% and 13% YoY to US$1,461m and US$250m, respectively. In local dollar terms, total beer sales fell 7.5% YoY (ASP: -1.5% YoY; volume: -6.1% YoY); normalised EBITDA declined 11.2% YoY (APAC West: -17.6% YoY; APAC East: +24.4% YoY). Quarterly GPM was down 0.5ppt YoY to 51.0%, as 3.9% YoY decrease in cost per hl was offset by 4.9% YoY decrease in ASP. Operating expenses ratio was up 1.8ppts YoY to 30.0%, along with operational deleveraging and heavier commercial investments.
　　Business strategy is consistent, according to management. Increasing market share continues to be placed at the top of Bud APAC’s agenda, esp. in its key regions in mainland China operation. The recent holiday traffic increase may drive 2Q25 sales turnover, but in general, beer consumption sentiment in China remains weak, esp. in on-premise channels. From a long-term perspective, management believes premiumisation trend will not retreat but move forward. In terms of profitability, in addition to sales mix upgrade, Bud APAC will continue to focus on agile pricing system and disciplined cost control (e.g. improving RTM through digitalisation initiatives).
　　China segment struggles amid soft industry cycle. In terms of RMB, Bud China’s revenue and normalised EBITDA experienced YoY decline of 12.7% and 17.1% in 1Q25, respectively, narrowing down compared to the past 3 quarters. Going forward, management reaffirms its commitment to drive recovery through Bud’s mega brands and mega platforms, with improving ROIC on its commercial investment. For example, Budweiser unveiled updated brand imagery in March following extensive CNY activations. Harbin’s partnership with NBA is successful and recurring, with sales volume of Harbin Icy GD Zero Sugar up c.70% in 1Q25. Another key is efficiency. On the digitalisation front, by March 2025, Bud China’s BEES has been present in over 320 cities across China. Channel wise, in-home scenarios play an increasingly important role due to shift in consumer behaviour. In our view, there is still big room for Bud China to expand retail PoS coverage, and practice similar to cooperation with Swire Coca-Cola Beverages in Hubei and Anhui looks replicable. O2O growth momentum may also persist.
　　South Korea segment saw +DD% YoY growth in sales volume in 1Q25 (4Q24: +HSD% YoY), supported by shipment phasing (ahead of a price hike announced in April). In terms of retail sales, Bud Korea’s market presence in both on- premise and in-home channels continued to grow. Flattish ASP was due to unfavourable channel mix. As a whole, APAC East witnessed YoY organic growth in revenue and normalised EBITDA of 11.7% and 24.4% in 1Q25, respectively. P&SP sales in India segment again saw positive YoY growth in 1Q25, further cementing itself as one of the top 4 markets globally for the Group.
　　Key Risks for Rating
　　Risks: 1) weaker-than-expected recovery of consumer confidence in China, esp. in restaurants & nightlife venues; 2) intensified market competition; 3) adverse weather conditions; 4) cost inflation; and 5) forex rate fluctuations.
　　Valuation
　　We revised down our top-line forecasts by 3-5% for 2025-27E, mainly reflecting a relatively conservative tune on near-term industry outlook in China, according to management. We slightly revised up normalised EBITDA margin forecasts on stronger-than-expected unit gross profit in 1Q25.
　　We reiterate that Bud APAC should trade at a higher valuation multiplier, given that 1) Bud China reported QoQ sales recovery and is more likely to bottom out (on a YoY basis) in the coming quarters, and 2) investor sentiment towards the China consumer sector in general has been gradually improving. We derive our new TP at HK$9.40, based on an unchanged 20.0x 25E P/E, with a BUY rating.