For the first time in nearly 3 years, China Resources Beer experienced a decline in revenue without "downgrading"

On August 19, China Resources Beer (0291.HK) released its 2024 interim results, achieving a revenue of HKD 23.744 billion, a decrease of 0.53% year-on-year; and a net profit attributable to equity holders of HKD 4.705 billion, an increase of 1.2% year-on-year.

Since 2020, China Resources Beer has seen a year-on-year decline in revenue for the first time.

Following the performance announcement, China Resources Beer declared an interim dividend of HKD 0.373 per share, a 30% increase year-on-year, with a dividend payout ratio of 25.71%, up by 5.78 percentage points year-on-year.

Both Morgan Stanley and Goldman Sachs mentioned that China Resources Beer's net profit performance was slightly below expectations.

In terms of product breakdown, the beer business contributed revenue of HKD 22.566 billion to China Resources Beer in the first half of this year, a decrease of 1.43% year-on-year, contributing a pre-tax profit of HKD 6.365 billion, an increase of 2.63% year-on-year.

Breaking down volume and price, China Resources Beer's beer business continued the trend of "volume decrease, price increase." The company achieved a sales volume of 63.48 million hectoliters for the year, a 3.4% decrease year-on-year; and an average price per ton of HKD 3,554.8, a 2% increase year-on-year.

China Resources Beer stated that the proportion of mid-to-high-end beer sales exceeded 50%, with sales of high-end and above products growing by double digits, and premium products achieving a 10% growth, including brands like Heineken, Snow Beer, and Red Bull seeing sales growth of over 20%.

However, in retail terminals, it is common to see Heineken and Budweiser priced at less than HKD 5 per bottle on shelves.

Regarding terminal promotions, Chairman Hou Xiaohai explained that this is to attract foot traffic for promotions, not an initiative by the manufacturers.

"This downgrade is not a downgrade in (consumer) quality, but a 'price war' at the terminal."

In the liquor sector, the growth driver Jinsha Liquor contributed revenue of HKD 1.178 billion, a 20.6% increase year-on-year, with sales of high-end single products growing by over 50%, contributing approximately 70% of the liquor business revenue.

Despite the revenue growth, the pre-tax, depreciation, and amortization profit of the liquor business was only HKD 413 million, a slight increase of 4.56% year-on-year.

Based on this calculation, Jinsha Liquor's operating profit margin is only 35.06%, lower than the Hong Kong-listed Zhenjiu Lidu (6979.HK).

TradeWind01 inquired with China Resources Beer about the reasons for the decline in the profit margin of the liquor business, but as of the time of writing, there has been no response.

A senior executive at China Resources Beer expressed hopes to develop another low-end single product "Huisha Liquor" in the future, with the revenue share of the low-end product Huisha Liquor and high-end single products in the liquor business expected to achieve a 40-60 split.

On August 19, China Resources Beer opened low and closed high, ending at HKD 24 per share