20161011-高盛-青岛啤酒股份-00168.HK-The_worst_is_over__Brand_refocus_to_drive_sales_recovery__up_to_Neutral_13页_461kb

Tsingtao Brewery (H) (0168.HK) Summary

Core Content

Goldman Sachs has upgraded Tsingtao Brewery (H) from a "Sell" rating to "Neutral," citing that the worst is likely over for the company as the Chinese beer market begins to recover. The firm believes Tsingtao is making strategic moves to focus on branding and promotions, which should support sales recovery and margin expansion.

Main Points

• Rating Change: Tsingtao H/A shares were upgraded to "Neutral" from "Sell" due to the gradual recovery of the beer market in China and improved brand initiatives.
• Sales Recovery Outlook:
  • Tsingtao expects a smaller sales decline in 2H16 compared to 1H16 (projected at -3% vs. -8%).
  • Positive sales growth is anticipated for 2017E and 2018E, with 2-3% topline growth.
• Margin Improvement:
  • EBITDA margin is expected to improve gradually from 8.4% in 2016E to 8.8% in 2018E.
  • The company's A&P spending is becoming more targeted, leading to 5-7% NPAT growth in 2017E and 2018E.
• Valuation Update:
  • The 12-month target price is raised to HK$30.7/RMB26.7, implying a 17% upside from the current price.
  • The valuation multiple is updated to 12X EV/EBITDA, up from 10X, reflecting the improved outlook.
• Market Share Dynamics:
  • Tsingtao is expected to lose market share to ABI in the premium segment and CR Beer in the mid-end segment.
  • ABI is projected to gain 27% market share in 2019E, while Tsingtao's share is expected to decline from 18% to 17%.
• Brand and Marketing Focus:
  • Tsingtao has appointed a new celebrity spokesperson and increased promotional efforts.
  • The company has also shifted its marketing strategy to target young consumers, with collaborations like the "Warcraft" themed beer and sponsorship of major events.
• Financial Performance:
  • EBITDA is expected to grow by 5.7% in 2016E and 6.9% in 2017E.
  • Net income is projected to grow by 5.0% in 2017E and 6.8% in 2018E.
  • The company has a strong balance sheet with RMB7,078mn in net cash as of 2016E.
• Price Performance:
  • Tsingtao shares have rallied 14% in the past two months but are still down 37% since the downgrade.
  • The stock is currently trading at 12X 12-month forward EV/EBITDA, which is in line with historical averages.

Key Information

• Investment Profile:
  • Current price: HK$31.55.
  • 12-month target price: HK$30.70.
  • Market cap: HK$42,623.5mn / US$5,494.1mn.
• EPS Forecasts:
  • 2016E: RMB1.02 (no change).
  • 2017E: RMB1.03 (+7.4% from 2016E).
  • 2018E: RMB1.10 (+5.9% from 2017E).
• Valuation Metrics:
  • P/E ratio: 35.0 (12/15) to 24.9 (12/18E).
  • P/B ratio: 2.9 (12/15) to 1.9 (12/18E).
  • EV/EBITDA: 19.6 (12/15) to 11.7 (12/18E).
• Key Risks:
  • Volume growth may be better or worse than expected.
  • Success of M&A could impact performance.

Conclusion

Goldman Sachs believes that Tsingtao Brewery is on the path to recovery, driven by improved market conditions and enhanced branding efforts. While the company faces competition from ABI and CR Beer, especially in the premium segment, the upgrade to "Neutral" reflects a more optimistic view of its future performance. The revised valuation and target price suggest that the company's stock is now considered fairly valued, with potential upside from improved sales and margins.