Budweiser APAC, Beer, Tsingtao Brewery, Beijing Yanjing Brewery, San Miguel Brewery, China Resources Beer, Consumption downgrade.

The premium beer company has struggled to maintain its post-pandemic sales pace in a fiercely competitive market, but major sporting events later this year could boost demand

Key Takeaways:

  • Budweiser APAC’s first-quarter revenues slipped 0.4% and profits fell 3.4%, sagging from elevated levels a year earlier and dampened by bad weather
  • Market watchers say earnings may pick up in the second half, stimulated by events such as the Paris Olympics, but rivalry in the premium beer business is heating up


By Fai Pui

It’s a bit like the downer after a party. Beer industry takings surged last year when China lifted its Covid restrictions, but the high has been wearing off.

Last week Hong Kong-listed Budweiser Brewing Company APAC Ltd. (1876.HK) became the latest Asian beer producer to report that sales had fallen flat in the first quarter compared to a year earlier, when China’s bars and restaurants were just coming back to life after the privations of the Covid pandemic.

The brewer, which sells brands such as Stella Artois, Corona and Budweiser across Asia, said its revenues slipped 0.4% in the quarter to $1.64 billion, while the volume of beer sales sank 4.8% to 2.11 billion liters.

Other beer producers have also been feeling hangover effects from last year’s release of pent-up revelry. Tsingtao Brewery (0168.HK; 600600.SH) logged a 5.2% fall in year-on-year revenue for the quarter, while turnover growth at Beijing Yanjing Brewery (000729.SZ)slowed to just 1.7% from 13.7% a year earlier.

But unlike Budweiser APAC, those brewers managed to improve their bottom lines even as sales momentum moderated. To investors’ disappointment, Budweiser APAC’s net profit actually fell 3.4% to $287 million despite a 4.4% drop in the quarter’s cost of sales. The performance was particularly weak In China, where sales tumbled 6.2% from the year-earlier quarter and revenues took a 2.7% hit.

The sales drop in China and South Korea was chiefly to blame for the lower earnings, the company said, citing the high baseline a year earlier and extreme weather such as heavy rains in Guangdong in March. But CEO Jan Craps reaffirmed the company’s focus on high-end beers, saying consumers will still want a taste of luxury even in challenging economic times.

Speaking at the results conference, he said high-end and ultra-premium products would be the company’s main profit source in the medium to long term. The company applied small price hikes to its high-end brands last November but kept the cost of other products stable in view of economic conditions, he said. 

China’s beer production has been declining since hitting a peak of 50.65 million kiloliters in 2013. Only 34.11 million kiloliters were produced in 2020, edging up to 37.89 million kiloliters in 2023. Therefore, major players such as Tsingtao Breweries and China Resources Beer (0291.HK) have been piling onto Budweiser APAC’s premium turf to achieve better business margins. The battle to attract high-end beer drinkers is getting ever more intense.

Superior beer wars

China Resources Beer, for example, has rolled out a range of premium drinks that helped to power an 18.6% jump in its annual profits last year. Consumers can choose from a high-end “Pure Malt”, an alcohol-free “Heineken 0.0” or a “Qinshihuang CPA”, a Chinese pale ale. The company’s super-premium “Nong Li”, a strong beer, is priced at up to 1,199 yuan ($166). The brewer’s sales of products classed as mid-grade or above rose 18.9% last year to about 2.5 million kiloliters. Some products achieved double-digit growth, with “Heineken” sales surging 60%.

China Resources Beer has ambitions to become the country’s biggest seller of higher-end beers. Speaking after the release of 2023 results, Chairman Hou Xiaohai said the company was on track to achieve its goal ahead of schedule, this year or next, by doubling down on promoting its premium portfolio.

Tsingtao Brewery also ramped up its efforts at the top end of the market last year, investing in promoting its Wheat Beer, Pure Draft, 1903 and other brands. Last year its sales of mid- and high-grade drinks rose 10.5% to 3.24 million kiloliters, increasing 4.17 percentage points to 40.5% of overall sales.

In April Tsingtao Brewery told investors that the beer industry was in fierce competition for high-end sales, vowing to use its marketing strategy to gain the upper hand. Even Yanjing Brewery and Hong Kong’s San Miguel Brewery (0236.HK)are challenging the giants by launching premium beers.

Whether all these rivals can succeed in the same exclusive space remains to be seen, as economic constraints force consumers to review their spending and in some cases to switch to cheaper brews. Commenting on the risk of “consumption downgrading”, Budweiser APAC’s CEO said he thought buyers would make rational decisions, taking the pleasure of the experience into account.

Curtis Yeung, strategist at UOB Kay Hian (Hong Kong), agreed that consumption downgrading was not a major factor for Budweiser APAC for now, as the company’s average retail price is rising. But competition in the industry was judged to be a growing problem. Yeung saw little prospect of an earnings uplift until the second half at the earliest, when European soccer championships and the Paris Olympics may stimulate beer sales.

Budweiser APAC’s forward price-to-earnings (P/E) ratio stands at about 18 times, with a dividend yield of just 3.65%, which Yeung considers an unappealing valuation. Without any positive news for now, investors may want to check back in again later in the year when the company’s business may be picking up.

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