China / Hong Kong Company Guide Brewing Company APAC Version 1 | Bloomberg: 1876 HK Equity | Reuters: 1876.HK Refer to important disclosures at the end of this report

DBS Group Research. Equity 25 Feb 2020

Brewing confidence in the APAC leader BUY(Initiating Coverage) Last Traded Price ( 24 Feb 2020):HK$23.55(HSI : 26,821) • Largest company in sales value terms with unparalleled Price Target 12-mth:HK$31.98 (35.8% upside) profitability in APAC • Keen focus on premiumisation despite short-term blow to Vincent YANG+852 36684197, [email protected] consumer sentiment Mavis Hui +852 36684188, [email protected] • Potential acquisitions to tap growth opportunities in SEA

• With decent progress in premiumisation and ongoing Price Relative operational improvements, we initiate coverage with a BUY call and SOTP -based TP of HK$31.98 Premiumisation as a key to growth. As the largest beer company in sales value terms with unparalleled profitability in the Asia Pacific region, we believe BUD APAC possesses great premiumisation potential due to its ongoing product mix upgrade and market share gain via its comprehensive brand matrix and strong sales network. We believe the company could see 8% normalized EBITDA and 12% core pre-tax earnings CAGR during FY19-21F, along with improving Forecasts and Valuation margins helped by efficiency enhancement on multiple fronts. FY Dec (US$m) 2018A 2019F 2020F 2021F Turnover 6,740 6,577 6,444 7,034 Where we differ: Turning positive on the medium-term outlook. EBITDA 1,994 2,184 2,223 2,537 Pre-tax Profit 1,255 1,463 1,621 1,946 Despite potential short-term headwinds in 1H20F, including 1) higher Net Profit 958 1,008 1,215 1,459 base due to advanced shipment in 1H19, 2) coronavirus outbreak to Core profit 1,000 1,128 1,255 1,499 drag on-premise consumption in both China and S. Korea, and 3) Core Profit Gth (%) 61.6 12.8 11.2 19.4 EPS (US$) 0.07 0.08 0.09 0.11 weak sales volume recovery in S. Korea, we are turning more positive Core EPS (HK$) 0.59 0.66 0.74 0.88 on the company’s medium-term prospects given its diversified effort EPS Gth (%) 66.9 5.2 20.5 20.1 to address channel weakness, intact high-end branding and potential Core EPS Gth (%) 61.6 12.8 11.2 19.4 Diluted EPS (HK$) 0.56 0.59 0.71 0.86 sales rebound starting from 2H20F. DPS (HK$) 0.23 0.24 0.29 0.34 BV Per Share (HK$) 5.97 6.11 6.58 7.11 Other business growth drivers: On top of the ongoing margin uplift PE (X) 41.8 39.7 33.0 27.5 boosted by local production of international brands in both China and CorePE (X) 40.0 35.5 31.9 26.7 P/Cash Flow (X) 23.8 23.2 22.8 18.3 , as well as higher production capacity utilisation, we P/Free CF (X) 36.9 34.4 33.5 24.7 believe BUD APAC has other business growth drivers including EV/EBITDA (X) 19.3 17.6 16.9 14.4 potential M&As and per capita beer consumption growth in emerging Net Div Yield (%) 1.0 1.0 1.2 1.5 P/Book Value (X) 3.9 3.9 3.6 3.3 countries in the long term. Net Debt/Equity (X) CASH CASH CASH CASH Valuation: ROAE(%) 9.4 9.8 11.3 12.5 Our SOTP-based TP of HK$31.98 values APAC West (mostly China) Earnings Rev (%): New New New Consensus EPS (US$) 0.07 0.09 0.11 at 21x FY21F EV/EBITDA and 15x FY21F EV/EBITDA for APAC East Other Broker Recs: B:12 S: 0 H:2 (mainly South Korea), to reflect our positive view in the medium-

Source of all data on this page: Company, DBS Bank (Hong Kong) Limited term. (“DBS HK”), Thomson Reuters Key Risks to Our View: Intensifying competition, slow recovery in China’s on-premise channel, regulatory risks in principal markets, volatility in raw material prices. At A Glance Issued Capital (m shrs) 11,792 Mkt Cap (HK$m/US$m) 277,702 / 35,629 Major Shareholders (%) AB InBev Brewing Co. Hold. (APAC) Ltd. 87.2 Free Float (%) 12.8 3m Avg. Daily Val. (US$m) 29.57 GICS Industry: Consumer Goods / Beverages

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Company Guide

Budweiser Brewing Company APAC

Table of Contents

SWOT Analysis 3

Premiumisation: Key to growth 4

Ongoing margin uplift 11

Other growth drivers 15

Key Risks 17

Financials 18

Valuation & Peers Comparison 19

Company Background 21

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Company Guide

Budweiser Brewing Company APAC

SWOT Analysis

Strengths Weaknesses • Recent hiccups in South Korea due to intensified • Largest brewer in Asia Pacific in sales value terms competition and weak consumer sentiment • Market leader in China’s premium beer segment • Relatively higher reliance on nightlife channel, which is • A comprehensive brand portfolio including popular sensitive to policy changes and economic development international and local beer brands • Multinational operations bring difficulties in satisfying • Extensive sales network with more than 6,000 distributors various local tastes and preferences and 2.5mn points of sales across Asia Pacific • Short term headwind: advanced shipment to China in • Solid production capacity of 157m HL within 56 breweries 2Q19 has laid a high base • Dedicated green production focus Opportunities Threats • Growth potential in Asia: 1) increasing beer per capita • Regulatory risks in principal markets consumption, 2) population growth • Increasing competition from local brewers • Expansion in South East Asia where the group currently has • Aging population in both China and South Korea limited exposure • Potential goodwill write-down • Premiumisation continues to be a key theme amongst Asian consumers • Craft beer might see strong demand

Source: DBS HK

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Company Guide

Budweiser Brewing Company APAC

Premiumisation: Key to growth A long-term structural trend. We believe premiumisation is the long-term structural trend of the beer industry in APAC, Market maturity assessment. According to Budweiser’s market and BUD APAC is well positioned for the premiumisation maturity model, we have classified BUD APAC’s markets into growth, especially driven by 1) ongoing consumer preference the following segments based on the maturity of the markets shift to premium products, 2) the market share gain in the and the market share of BUD APAC in the local market. Per premium beer segment. AB InBev’s standard, South Korea and China currently have medium market maturity, although BUD APAC has secured a higher market share in South Korea. Meanwhile, other key markets, e.g. India and Vietnam, still have low market maturity.

Market characteristics during different maturity stage

Market maturity Low Medium High Household consumption Up to US$3,000 - more than expenditure per capita US$3,000 US$20,000 US$20,000 (2005 constant currency) Per capita consumption 2-3 4-7 8-10 pure alcohol (Liter) Abstinence 60% 48% 26% Beer share of formal 40-80% 50-80% 35-50% alochhol

Source: AB InBev

Market maturity assessment indicates premiumisation as a major growth driver

Source: GlobalData, Company

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Company Guide

Budweiser Brewing Company APAC

1) Premiumisation across APAC Retail selling price across selective countries (2018) Price to catch up with world average. Most of the emerging markets in APAC region still have lower-than-world-average US$ per liter beer price, and there is good potential for these emerging 8.0 countries to gradually increase their beer prices. 6.7 7.0 6.6 6.6 Leading growth driver: Premiumisation. According to 6.0 5.0 4.4 GlobalData, the APAC beer industry is expected to see 1.6% 3.9 3.4 growth by volume and 4.9% growth by value during 2018- 4.0 3.3 3.1 2.9 23F. The premium and super premium segment could see 3.0 2.1 2.0 2.0 1.8 higher CAGRs of 5.6% and 8.5% in volume and value terms 2.0 respectively. 1.0 0.0

USA

New…

India

Brazil

Japan

China

World

Mexico

Vietnam

Thailand

Cambodia Philippines

s Korea South

Source: AB InBev

Premium beer growth outpaced overall market (18-23 value Premium beer growth outpaced overall market (18-23 volme CAGR) CAGR)

4.9% 1.6% Overall APAC Overall APAC 8.5% 5.6%

4.7% 1.9% China China 8.5% 4.9%

9.0% 3.9% Vietnam Vietnam 12.3% 8.9%

4.7% 1.9% South Korea South Korea 10.1% 12.3%

5.5% 6.6% India India 10.9% 12.9%

0.0% 5.0% 10.0% 15.0% 0.0% 5.0% 10.0% 15.0% overall premium & super premium overall premium & super premium Source: GlobalData Source: GlobalData

Premium beer: The centre stage of brewery sector. Premium beer has seen growth across the board in APAC, and thanks to that, premium beer has been gradually taking up more volume and value share of the beer industry. By the end of 2023F, it is believed that premium beer will account for 51% and 61% of South Korea and China’s beer retail sales in value terms.

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Company Guide

Budweiser Brewing Company APAC

Premium share expansion of beer markets in terms of value Premium share expansion of beer markets in terms of volume

18-23F 18-23F CA GR 12.3% 10.1% 8.5% 10.9% CA GR 8.9% 11.7% 4.9% 12.9% 70% 45% 42.4% 60.9% 40.2% 60% 40% 52.8% 33.4% 51.1% 51.1% 35% 50% 45.7% 30% 37.2% 24.5% 40% 33.7% 25% 28.6% 19.0% 19.9% 30% 22.9% 20% 16.4% 17.8% 15% 10.9% 11.9% 20% 14.0% 8.8% 10% 7.3% 6.8% 3.6% 10% 5% 0% 0% Vietnam S. Korea China India Vietnam Korea China India 2013 2018 2023F 2013 2018 2023F Source: GlobalData Source: GlobalData

2) BUD APAC’s product mix upgrade BUD APAC’s performance in China Industry-wide product mix upgrade. We have seen a structural consumer preference shift towards premium . YoY Growth in BUD APAC has been moving ahead compared to peers in China (%) 2014 2015 2016 2017 2018 1H19 3Q19 9M19 Revenue 11.6 9.8 1.3 7.3 8.3 7.6 -0.2 4.7 premiumisation, as evidenced by continuous growth in Volume 1.6 0.4 -1.2 1.1 2.5 -0.2 -5.9 -2.3 revenue per hl. Revenue per hl 9.8 9.4 2.5 6.1 5.7 7.8 6.0 7.2 EBITDA 29 33.7 6.6 34.7 20.9 21.6 11.4 18.2 EBITDA margin ↑2.57 ↑4.11 NA ↑5.91 ↑3.38 ↑4.77 ↑c.4.00 ↑4.50+ Product mix upgrade in China improvement (ppt)

Source: AB InBev Press Release mn liter 100% Strong pricing power leveraging on excellent branding. BUD 90% APAC has a strong leadership in the premium and super 80% 70% premium category and enjoys a strong brand position.

60% Therefore, average selling price for BUD APAC West (mostly

70.5%

71.8% 73.3%

80.0% China) is higher than other major peers' in China and it has

82.3% 84.5%

50% 85.4%

87.2%

88.7% 89.6% 40% also seen consistent growth over the last few years. 30%

20%

10%

24.3% 25.9%

11.2% 14.5% 15.5% 19.9% 22.4%

12.7% 17.7% 0% 10.4% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Premium Lager Mid-Priced Lager Economy Lager

Source: Euromonitor

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Company Guide

Budweiser Brewing Company APAC

Brewery ex-factory price comparison (2018) Breweries ex-factory price growth

RMB/tonne 14% 5,000 12.3% 4,488 11.1% 4,500 12% 9.4% 4,000 3,672 10% 3,309 3,500 6.1% 7.5% 2,824 2,894 8% 3,000 5.9% 5.7% 2,500 6% 4.7% 4.4% 2.7% 2,000 4% 2.7% 2.3% 2.5% 2.6% 1.7% 1,500 2% 1.1% 1,000 0.6% 500 0% 0.0% 0 -2% -0.4% FY15A FY16A FY17A FY18A

CR Beer Tsingtao Brewery

CR Beer CR Brewery

Tsingtao Yanjing Beer Chongqing Brewery

Brewery Budweiser

Chongqing Budweiser (China) Yanjing Beer Yanjing (APAC West) (APAC Source: Company, DBS HK Source: Company, DBS HK

3) BUD APAC’s market share gain in premium beer segment BUD APAC as a market share winner. We have seen a clear Ongoing market consolidation. According to Euromonitor, the consolidation trend in the China beer industry, when BUD number of Chinese breweries had decreased from 504 in APAC’s retail volume share increased from 12.9% in 2013 to 2012 to 467 in 2017, due to stagnant sales volume, intense 16.2% in 2018. As the consolidation trend is largely on the competition, and rising raw material cost pressure. Among the cards, with the top-five players holding c.70% of market 447 existing breweries that are above designated size, c.30% share, the industry dynamics could be very much similar to of them incurred a loss in 2017, according to National Bureau Japan, where the top-four breweries took up as much as 95% of Statistics of China. We believe the Chinese brewery of overall sales volume during the last ten years. industry has sped up consolidation as small breweries found it A leading player in premium beer segment. BUD APAC is challenging to sustain business operations while leading particularly strong in the premium beer segment with 47% players continued to take more market share. market share in 2018 in China, leveraging on its relatively bigger exposure on on-premise and nightlife channels. This is Number of brewers in China evidenced by a solidified sales coverage of about 4,500 distributors and more than 2m point of sales (POS) in China, Number of brewers many of which exclusively supply BUD APAC’s brands. We 520 also believe the company has achieved dominant or leading 506 504 positions in several regions (Fujian, Guangdong [with the aid 500 of Zhujiang Brewery (002461.CH)], Heilongjiang, Jilin and a 480 few provinces in Eastern and Central China). Over the long 480 470 468 term, as the main channel for premium beer, on-premise should continue to be the key growing channel, outpacing the 460 447 retail channels. We believe the tightening of control over the nightlife channel since 2Q19 has more of a short-term impact, 440 pending the development of the COVID-19 epidemic.

420 415

400 2012 2013 2014 2015 2016 2017 2018

Source: Ministry of Commerce (PRC)

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Company Guide

Budweiser Brewing Company APAC

Brewery market share in China (2018 vs. 2013) Premium beer market share (2018 vs. 2013)

Others Others 22% 29.6% CR Beer -5.2ppt 23.2% -2.4ppt +2.8ppt Calsberg 5% Budweiser Tsingtao -0.3ppt 47% 16.4% +6.4ppt Carlsberg +1.0ppt 6.1% CR Beer + Yanjing AB InBev +0.2ppt 8.5% Heineken 16.2% 13% -2.1ppt +3.3ppt -2.0ppt Tsingtao 14% -1.7ppt T otal volume (2018) : 488mm HL Source: GlobalData Source: GlobalData

Strong branding to back premiumisation

Major breweries dominating markets (market share >50%)

Heilongjiang

Jilin

Liaoning Xinjiang

Beijing Gansu * Inner Mongolia Tianjin Hebei

Shandong Ningxia Shanxi Qinghai*

Henan Jiangsu Shaanxi Tibet* Anhui Shanghai Sichuan Hubei Zhejiang Chongqing CR Beer Jiangxi Hunan Tsingtao Brewery Fujian Guizhou AB-InBev Yunnan Guangdong Guangxi Yanjing

Hong Kong Carlsberg

Hainan Other breweries Source: China Beer Association, Zhiyan Consulting, Company, DBS HK * Carlsberg's 50%-owned JV with local beer brand "Huanghe" in Qinghai & Gansu, “Lhasa Beer” in Tibet

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Company Guide

Budweiser Brewing Company APAC

A strong brand portfolio in the premium segment: The company has a comprehensive portfolio of more than 50 beer brands, including global brands such as Budweiser, Stella Artois and Corona, and multi-country and local brands such as Hoegaarden, Cass, and Harbin. Third-party brands, such as Sapporo, Guinness, Blue Girl in China, are also distributed by the company to expand its offerings.

The company also sells high-end craft beer brands such as Goose Island and Boxing Cat. Craft beer is getting increasingly popular among young generation in China, given its uniqueness. Although craft beer accounted for less than 1% of overall beer consumption in China, it has seen rapid growth of more than 40% YoY in sales volume terms in 2018. We believe craft beer segment continues to see excellent growth potential in China.

Strong branding to back premiumisation and market share expansion

Source: IPO Prospectus

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Company Guide

Budweiser Brewing Company APAC

Aggressive marketing campaigns expected. Facing the competition On comparison, Budweiser has been a frequent sponsor for pressure from CR Beer (291.HK), which has launched multiple music festivals to strengthen its brand association with music. It branding and marketing campaigns, we believe BUD APAC is also also hired Nicholas Tse (谢霆锋) to market its on-premise likely to match the effort. We understand that CR Beer has been focused beer, while its wholly owned Chinese brand, Harbin hiring trend-setting celebrities/KOLs to promote its key products Beer, has been heavily promoted on esports, as online gaming (rather than the whole “Snow” brand) with a different focus on has become one of the hottest pastimes among the young elements that young drinkers would prefer to be associated with, people in China. such as “Cool”, “Foodie”, “Fashion Lover”. For instance, rapper Jackson Wang (王嘉尔) has been hired as spokesperson for Scalable model. We believe BUD APAC’s business model (i.e. “SuperX”, while Model Sui He(何穗) and Actor Boran Jing (井柏然) to achieve scale in the high-end space and differentiate its have become the spokespersons for newly launched “Marssgreen”, core products with peers) will enable strong expansion in new which targets fashion enthusiasts. On top of that, we understand CR markets, riding on urbanisation of emerging countries and Beer has been actively featured in online TV programmes, such as consumers’ increasing preference for premium products. The “Hot Blood Dance Crew 热血街舞团”, and well-received dietary company aims to replicate its success in China in other documentaries, such as “Once upon a bite 风味人间”, to better emerging markets such as India and Vietnam. associate its products with certain segments. BUD APAC well-positioned in different channel via various products

AB InBev CR Beer Tsingtao Brewery

Tsingtao beer Harbin Crystal Brave the world SuperX Targets: young adult; elements: Cool Targets: young adult; Elements: Cool

Ingenuity Targets: foodies & 30+ mature males; Tsingtao Beer 1903 Elements: food/good quality

Budweiser Supreme Targets: foodies & 30+ mature males; Elements: food/good quality

Marrsgreen Targets: young adult; Elements: Fashion

Augetta Corona Targets: young adult; Elements: relaxation/beach scenery

Lianpu Targets: middle class; Elements: Chinese traditional culture

Source: Company

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Company Guide

Budweiser Brewing Company APAC

Ongoing margin uplift

1) Best-in-class profitability in APAC

Unparalleled profitability in APAC. Budweiser APAC expanded its EBITDA margin in the past two years. Its overall normalised EBITDA margin was 29.6% in 2018, and 34.6%/28.0% in APAC East and APAC West respectively. The overall EBITDA margin increased to 34.6% in 1H19, which was 16ppts higher than the No.2 player in China. Budweiser APAC achieved a similar performance in net profit margin trend, although its net profit margin fell below Chongqing Brewery’s in 9M19 as a result of higher D&A expenses.

Margin comparison: BUD APAC the best in class in APAC

--- GP margin ------EBITDA margin ------Net margin --- FY17 FY18 1H19 FY17 FY18 1H19 FY17 FY18 1H19 Budw e is e r 51.7 51.9 53.6 27.1 29.6 34.6 9.4 14.2 17.2 China Beijing Yanjing Brew ery 36.3 38.5 42.6 11.0 10.9 17.5 1.4 1.6 7.9 Ts ingtao Brew ery 40.5 37.7* 38.9 9.9 10.0 11.4 0.8 5.4 9.9 Chongqing Brew ery 39.4 39.9 40.7 15.6 18.9 21.8 10.4 11.7 13.0 China Res ources Beer Holdings 33.7 35.1 37.8 14.8 ^ 14.2 ^ 18.7 ^ 6.4 ^ 7.1 ^ 11.1 ^ Ave rage

SEA Carls berg Brew ery Mal. 35.0 33.5 NA 18.9 19.6 17.9 12.5 14.0 12.8 Heineken Malays ia 34.3 32.2 NA 21.7 21.2 25.0 14.0 13.9 17.1 S aigon Beer 25.9 22.5 25.0 16.8 14.1 17.6 13.8 11.6 14.4 S an Miguel Food And Beverage 33.0 32.2 32.6 19.9 19.1 19.7 4.9 6.1 6.5 Thai Beverage Public 30.6 29.3 30.1 17.1 14.6 15.4 18.2 8.1 10.6 Ave rage J apan Kirin Holdings 43.6 43.2 44.1 15.5 13.8 19.8 13.0 8.5 4.4 As ahi Group Holdings 37.9 38.5 38.5 13.7 15.1 14.9 6.8 7.1 6.4 S apporo Holdings 30.5 30.6 29.3 8.6 6.0 5.7 2.0 1.6 (0.3) Kore a Hitejinro 43.2 40.9 NA 11.3 11.8 10.2 0.2 0.6 (0.2)

* accounting policy adjus tment ^ adjus ted EBITDA/earnings

Source: Bloomberg Finance L.P., Company

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Company Guide

Budweiser Brewing Company APAC

2) Margin upside vs. AB InBev GP margin vs. AB InBev Playing catch-up on GP margin level. Despite having the highest GP margin compared to Chinese peers, we believe 70% there is still headroom for BUD APAC, as compared to AB 62% 63% InBev’s global average. We expect overall GPM to expand 60% 51.7% 51.9% from 51.9% in FY18 to 54.1% in FY21F. GP margin 50% expansion will be mainly driven by ASP increases through product mix upgrades. We expect BUD APAC to capture the 40% premiumisation trend across its principal markets via 1) increasing sales volume of premium brands, 2) increasing ASP 30% of its mainstream brands and introducing new series into 20% current brands (such as Harbin Wheat King), 3) local production of international brands, such as Corona. 10%

Corona’s localised production in China. Given the rapid sales 0% growth of Corona globally, the installed capacity in Mexico FY17 FY18 BUD APAC AB InBev might not be sufficient enough to support the swelling demand in the world. Not only just in China, AB InBev is also Source: Company now locally producing , Colombia, Belgium and the UK. Such a move is also believed to improve the Ongoing EBITDA margin expansion. We also expect BUD availability of Corona in different markets and increase APAC to focus on driving EBITDA margin expansion in the coming years. Product mix, potential like-for-like price profitability. We believe the sales scale of Corona in China increase, operating leverage and cost savings are key drivers (c.630k HL as of 2018 per Euromonitor) has arrived in a of EBITDA margin expansion. From 29.6% in FY18, we tipping point which made local production more profitable forecast EBITDA margin to grow to 35.9% in FY21F. APAC compared to direct export from Mexico. The economics of East (34.6% in FY18) currently has a higher EBITDA margin scale, reduction in logistics costs and savings in procurement than APAC West (28.0% in FY18). We estimate APAC East's have explained these business decisions. To ensure the Corona EBITDA margin to expand to 33.9% in FY21. As for APAC quality outside of Mexico, AB InBev also sent its brewing West, we estimate its EBITDA margin to expand to 36.5% in FY21. In the long term, we expect EBITDA margin to exceed masters onsite. We believe the Corona localization in China 40% for both APAC East and APAC West, which would be at will continue to strengthen the company’s gross margin. par with AB InBev's global margin level.

Gross margin of major breweries in China

55%

50%

45%

40%

35%

30% FY14A FY15A FY16A FY17A FY18A CR Beer Tsingtao Brewery Yanjing Beer Chongqing Brewery Budweiser APAC overall GP

Source: Company

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Company Guide

Budweiser Brewing Company APAC

Normalised EBITDA margin AB InBev’s Normalised EBITDA margin in Latin America

40% 60%

52%

36.1%

35.0%

32.1%

35.2% 37.1% 34.5% 50%

34.6% 49%

33.3% 33.2% 33.2% 48% 35% 31.8% 50% 46% 47%

44% 43% 44% 29.6%

30% 28.0% 27.1% 40% 25% 24.6% 30% 20% 15% 20%

10% 10%

5% 0% 0% LatAm West LatAm North LatAm South Group Asia Pacific East Asia Pacific West (Mexico & COPEC) (Brazil) FY16A FY17A FY18A FY17A FY18A FY19F FY20F FY21F Source: IPO prospectus, DBS HK Source: AB InBev local production of Corona should further boost 3) Where to locate the room for improvement in utilisation level in China going forward. On top of that, profitability? we believe the company could potentially trim down its a. Utilisation improvement idle capacity, especially in mass-market beer, to improve its capacity utilisation, in the context of saturated beer Still room to improve utilisation rate. BUD APAC has 56 sales volume in China. breweries located in Asia Pacific. As of March 2019, the company had a total production capacity of c.157m HL, - South Korea: Production in South Korea is believed to enjoy translating into a utilisation rate of c. 60%. Meanwhile, the a higher utilisation rate of 73% with a better economy of company also imports more than 25 exclusively distributed AB scale given larger sales per plant. In view of the changes InBev brands in APAC, including Stella Artois, Corona and in South Korea’s new beer import tax law, we believe Beck’s. more beer with international brands would likely be brewed locally, and potentially drive higher utilisation - China: We understand that about 88% of the production levels. capacity, or 50 breweries, are located in APAC West, mostly in China. BUD APAC’s utilisation rate in China is similar to other Chinese peers, and we opine that the

Capacity utilisation rate comparison (PRC) Capacity utilisation rate in FY18

Production 80% Capacity ('000 kL) 72.6% Company & Utilisation rate F Y16A F Y17A F Y18A 70% CR Beer Production Capacity 22,000 22,000 21,000 57.9% 60% utilisation rate 53.3% 53.7% 53.7% Tsingtao Brewery Production Capacity 15,660 14,820 14,080 50% utilisation rate 72.7% 71.4% 70.1% 40% Chongqing Production Capacity 1,710 1,790 1,790 Brewery utilisation rate 70.8% 65.5%* 57.9%* 30% Budweiser (APAC Production Capacity 14,193 West) utilisation rate 59.6% 20% 10%

0% Asia Pacific East Asia Pacific West Source: Company, *utilisation rate declined due to newly opened Yibin Source: IPO prospectus plant in Sichuan province

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Company Guide

Budweiser Brewing Company APAC

Plant closures (PRC) Revenue per plant

Company Time Remarks Chongqing 2015 3 plants in Chongqing, Guangxi, Anhui US$ m Brewery ceased production 450 2016 Closed/sold 4 breweries in Chongqing, 396 400 Guizhou, Anhui, Zhejiang 2017 Closed 2 plants 350 2018 Closed 1 plant 300 2019 Closed plant in Yongchuan in April 2019 250 Tsingtao 2018 Closed two plants Brewery 200 AB InBev 2016 Closed 8 plants in Liaoning, Hunan, 150 Zhejiang, Henan 99 2019 Closed two plants in China, including one 100 in Daqing, Heilongjiang 50 CR Beer 2016 2 plants in Anhui and Henan ceased 0 production Asia Pacific East Asia Pacific West 2017 Closed 5 breweries in Heilongjiang, Shanxi, Sichuan, Anhui, Zhejiang 2018 Altogether closed 13 breweries in Inner Mongolia, Sichuan, Guangdong, Jilin, Liaoning, Beijing, Anhui, Zhejiang, Hubei Yanjing 2018 Closed 1 plant Brewery Zhujiang 2017 Closed a brewery in Shantou, Guangdong Brewery

Source: Company, DBS HK Source: Company b. Employee efficiency

Potential to match efficiency level compared to South Korea. BUD APAC had 29,296 employees as of March 2019 and about c.87% of them are based in China. Job function wise, the company has more than 15,000 salespersons. Overall, BUD APAC has fewer employees compared to other Chinese peers, and it has achieved a higher sales per employee in China. But its China operation still has significant efficiency headroom to improve, as sales per employee in South Korea is more than 5 times of that in China.

Chinese breweries’ employee number Sales per employee per year by company Sales per employee per year (BUD APAC)

No. of Employee RMB mn US$mn 70,000 1.4 0.90 0.78 60,000 1.2 0.80 0.74 50,000 1.0 0.70 40,000 0.8 0.60 30,000 0.6 0.50 20,000 0.4 0.40 0.30 10,000 0.2 0.18 0.20 0.16 0 0.0 FY13A FY14A FY15A FY16A FY17A FY18A FY13A FY14A FY15A FY16A FY17A FY18A 0.10 CR Beer Tsingtao Brewery CR Beer Tsingtao Brewery 0.00 Yanjing Beer Chongqing Brewery Yanjing Beer Chongqing Brewery FY17 FY18 Budweiser (China) Budweiser APAC West APAC East APAC West Source: Company Source: Company Source: Company

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Company Guide

Budweiser Brewing Company APAC

Other growth drivers b. Per capita beer consumption (PCC) growth a. M&A opportunities Asia to lead PCC growth. Going forward, we believe Asia should continue to see higher growth in beer consumption M&A: A decent track record. BUD APAC has utilised M&A to compared to other regions. Specifically, we might see PCC expand its presence in the APAC region. Before the two growth potential in some of BUD APAC’s principal markets, global mergers between InBev and Anheuser-Busch (2008), as i.e. India and Vietnam. Specifically, India has a big and young well as AB InBev and SAB Miller (2016), Anheuser-Busch population and a growing middle class. The India beer market acquired Harbin Brewery in 2004 in China. SAB acquired is currently underdeveloped, and its PCC is less than two litres Foster’s Group in 2011 in Australia, which was recently per year, which is far below the regional and global average. divested by AB InBev in 2019. BUD APAC also regained its Vietnam is also seeing decent growth given its higher PCC of presence in South Korea via acquisition of in more than 50 litres per year, which might continue in the 2014 in South Korea. The acquisitions of Harbin Brewery coming years, driven by its fast-growing economy. (China) and Oriental Brewery (South Korea) have robustly secured BUD APAC’s market presence in the local beer PCC trend in APAC countries segment.

Deep pocket for potential M&A in other emerging markets. Total Volume litres/Capita BUD APAC’s listing has waived its initial duties of lowering AB 60 InBev’s (Parent Company) debt level. Given BUD APAC’s 50 strong operating cash flow of c.US$1.5bn per year, lower investment in capex as well as its improving working capital, 40 we believe the company could potentially achieve a net cash 30 level of US$3.6bn, which should be sufficient to support 20 potential M&A opportunities, especially in Southeast Asia (SEA). 10 0

Possible targets could include Thai Beverage (THBEV SP), and

2013

2014

2015

2016 2017

San Miguel (FB PM) Beer in Philippines, just to name some of 2018

2019F

2020F

2021F

2022F 2023F the stronger operators in Asia. We also believe a potential India Philippines Thailand acquisition of Zhujiang Brewery (which it currently owns a China South Korea Vietnam 29.9% stake) could meaningfully strengthen its exposure in strategic regional markets like Guangdong and pave the way Source: Euromonitor for success in China’s premium beer segment.

Robust net cash level to support potential M&A

US$ mn 4,000 3,520 3,500

3,000 2,429 2,500

2,000 1,669 1,500

1,000

500

0 FY19F FY20F FY21F

Source: DBS HK

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Company Guide

Budweiser Brewing Company APAC

Beer per capita consumption (PCC) per year across selective countries (2018) CAGR of PCC around the world

80 72.0 40 68.8 34.2 70 35 58.1 60 30 50 43.4 22.6 38.0 25 40 32.7 30.4 20 17.4 30 22.4 15 20 8.1 8.4 9.2 6.1 10 6 7.2 10 1.8 5 0 1.4

0

USA India

Brazil 2003-08 2008-17 2017-22E

China

Mexico

Vietnam Thailand

Malaysia ME & Africa Asia LatAm Philippines

South Korea South Source: Euromonitor Source: Euromonitor

c. South Korea’s new liquor tax

New liquor tax in South Korea. The South Korean government implemented a new volume-based liquor tax system in Jan 2020. With the new tax system, both domestic and imported beer brands are taxed 830.3 won per liter. In 2018, the average tax for domestic beer brands was estimated at 848 won per liter, compared to 709 won per liter for imported beer. The change is expected to benefit domestic beer breweries and put them on a level playing field with imported brands.

BUD APAC to benefit from the changing system. In the previous tax system, domestic beer was taxed on the cost of production, the cost of sales and the profit margin, while imported beer was taxed on production costs and customs duty. The difference had allowed imported beer to be sold at a discount as compared with domestic beer. With the implementation of the new tax system, the price gap between imported and domestic beer could narrow, benefitting the brewers with local production capacity, such as BUD APAC, as it could brew its premium .

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Company Guide

Budweiser Brewing Company APAC

Key Risks 2. Nightlife channel recovery in China

1. Intensified competition in South Korea In China, the government’s crackdown on nightlife channel and rapid expansion of the largest local brewer, China Resources Beer prices in South Korea have been increasing every 3-4 years, Beer, resulted in Budweiser APAC’s volume decline of 2.3% y-o-y normally starting from the largest brewer. Oriental Brewery (OB, in 3Q19. Starting from January, the outbreak of novel coronavirus the largest brewery in South Korea and owned by Budweiser has weighed more on the nightlife channel, especially in first-tier APAC) led the previous two beer price hikes in 2012 and 2016, cities. increasing prices by c.6% each time, followed by other players including BUD APAC’s key competitor Hite Jinro (Hite). As Budweiser APAC’s products are mainly targeted at the mid- to high-end market, a slow recovery in China’s nightlife channel In April 2019, OB raised prices by 6% but Hite did not follow suit could affect its near-term growth. If the epidemic drags on into as it rolled out a new product 'Terra' (at the same price as Hite's the summer of 2020, overall sales volume would face intense existing brands including HITE). Hite's domestic beer sales rose pressure. 5% y-o-y in 2Q19, with Terra accounting for c.20% of volume. 3. Potential write-down of goodwill and intangible assets: Facing strong pressure from the price gap with Hite and its popular new brand “Terra”, Budweiser APAC eventually rolled Goodwill and intangible assets combined accounted for back the price increases in October 2019. c.55% of the company’s total assets as at 30 June 2019. It is vulnerable to any revaluations of its multiple breweries, such Given the inventory destocking and increasing competition, as those in South Korea and China. coupled with the slowing South Korean economy amidst Sino- China and Japan-Korea trade wars, BUD APAC’s sales in South Korea is believed to have still faced headwinds in 4Q19, albeit at a slight improvement over 3Q19. However, as the price roll-back erased the price gap compared to Hite, we believe the competition level could stabilise in mid-2020.

Asset breakdown comparison

Budweiser Asset breakdown (2018) CR Beer Asset Breakdown (2018) Tsingtao Brewery Asset Breakdown (2018)

Inventories Trade 3% receivables Others 4% 6% Bank Fixed assets balances 24% and cash 10%

Intangible assets 11% Goodwill 42%

Source: Company reports

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Company Guide

Budweiser Brewing Company APAC

Financials

Short-term sales growth retreat. We forecast FY19/20 revenue growth of -2%/4%, compared to 11% turnover growth in FY18, mainly dragged by underperformance in South Korea and nightlife channel weakness in China. Going forward, we believe these drawbacks should gradually improve after 1H20F. Given the relatively high base due to the advanced shipment in 1H19 as well as the potential weak consumer sentiment due to coronavirus outbreak, we believe 1H20F should continue to see headwind. While we expect 2H20F might see high-single-digit sales growth on a low base and recovering economy. In the long run, the company’s sales should continue to be shaped by premiumisation progress.

Ample room for margin improvement. We expect GP margin to stay relatively stable in FY20F compared to FY19F, assuming stable raw material prices. However, we believe the company will gradually lift its GP margin via its product mix upgrade and market share expansion in the premium beer segment.

Great corporate execution to lift operating margin. Down to the operating level, we believe that the stringent overhead cost control and the disciplined A&P expense management should continue to improve operating efficiencies. The ongoing capacity rationalisation and international brand’s local production in both Korea and China should also help to boost capacity utilisation in the mid-to-long term.

Expected to see teens earnings growth. We believe pre-tax core earnings growth might be more representable as FY19F earnings should be lower due to one-off tax increase related to the IPO. We expect BUD APAC to see core per-tax earnings CAGR of 15% during 2019-21F. The improving business would greatly contribute to BUD APAC’s strong operating cash flow, while capacity expenditure should stay within a manageable level of around US$560, mainly for maintenance purposes during FY19F-21F.

Strong net cash position. We expect BUD APAC to stay in a net cash position of US$1.7bn at end-FY19. We expect strong cash inflows to continue to beef up its cash position and fuel ongoing inorganic growth. The company expects capex to be c.US$560m for FY19F.

Dividend policy. At least 25% payout going forward (excluding one-off items, e.g. restructuring charges, etc.).

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Budweiser Brewing Company APAC

Valuation & Peers Comparison EV/EBITDA Band – BUD APAC We derive our target price of HK$31.98 for Budweiser APAC via SOTP valuation and benchmark FY21F EV/EBITDA for our TP valuation to reflect our positive view on the company’s Share Price (HK$) 36 medium-term development. We value the BUD APAC West 23.9x business segment (mostly China) at 21x FY21F EV/EBITDA, 34 roughly 1SD higher than CR Beer’s 4-year average, to reflect 32 22.1x its superior market position in the faster-growing premium 30 beer segment in China. We also peg BUD APAC East’s 20.2x 28 valuation (mostly South Korea) to 15x FY21F EV/EBITDA, 26 18.3x equivalent to AB InBev’s divestment valuation of Foster’s 24 Group in Australia, given their similar market maturity. 16.4x 22 We believe EV/EBITDA should be a propriate valuation method 20 for brewers given their asset-heavy nature and different

capital structure. The depreciation and amortisation costs of

Jan-20

Oct-19

Sep-19 Dec-19 fixed asset as well as impairment losses could sometimes lead Nov-19 to significant earnings fluctuation. Source: Thomson Reuters, DBS HK Overall, our TP implies a blended EV/EBITDA multiple of 20x FY21F. Comparable beer companies in China are trading at 17x FY21F EV/EBITDA on average. We believe BUD APAC should trade at a premium given its larger sales scale, better branding and profitability, as well as its higher growth potential of premiumisation in the long run. SEA peers (excluding San Miguel F&B) are also trading at around 14x FY21F EV/EBITDA. Global beer peers are trading at a slightly lower EV/EBITDA multiple of 13x FY21F on average, given overall saturated sales volume and slower growth potential in developed markets.

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Company Guide

Budweiser Brewing Company APAC

Peers comparison

T arget Mk t PE PE PE P/Bk P/Bk P/Bk EV/EBITDA ROE ROE ROE Price Price Cap 19F 20F 21F 19F 20F 21F 19F 20F 21F 19F 20F 21F Company Name Code Cur Local$ Local$ US$m x x x x x x x x x % % % China A-share listed Beijing Yanjing Brew.'A' 000729 CH CNY 6.38 n.a. 2,559 76.0 65.1 52.7 1.4 1.3 1.3 12.6 11.1 10.2 1.7 2.0 2.4 Chongqing Brew.'A' 600132 CH CNY 48.39 n.a. 3,333 38.6 41.7 36.1 17.6 16.1 14.2 33.3 27.2 24.2 44.6 40.8 43.1 Tsingtao Brewery 'A'* 600600 CH CNY 46.22 45.54 8,266 34.9 30.4 26.5 3.4 3.2 3.0 14.9 13.2 11.4 9.9 10.9 11.7 A v erage 49.8 45.7 38.4 7.5 6.9 6.2 20.2 17.1 15.3 18.7 17.9 19.1

Hong Kong listed Budweiser Brewing Company Apac* 1876 HK HKD 24.6 31.98 1,529 41.5 34.4 28.7 4.0 3.7 3.5 21.0 19.4 17.1 9.8 11.3 12.5 China Resources Beer Holdings* 291 HK HKD 37.95 48.91 15,809 59.1 34.3 24.8 5.4 4.7 4.1 22.5 17.7 14.3 9.5 14.7 17.8 Tsingtao Brewery 'H'* 168 HK HKD 43.85 52.37 8,266 29.8 26.0 22.7 2.9 2.7 2.6 12.1 10.6 9.1 9.9 10.9 11.7 A v erage 43.5 31.6 23.8 4.1 3.7 3.4 17.3 14.1 11.7 9.8 12.3 14.0

SEA Carlsberg Brewery Mal. CAB MK MYR 38.94 n.a. 2,842 40.9 36.5 33.6 80.1 57.9 52.8 23.5 21.5 19.8 183.3 180.2 185.1 Heineken Malaysia HEIM MK MYR 31.04 n.a. 2,238 n.a. 26.6 25.1 n.a. 24.2 25.3 n.a. 15.9 15.1 0.0 93.6 99.3 San Miguel Food And Beverage FB PM PHP 74 n.a. 8,638 25.0 23.4 20.7 4.6 4.3 3.9 10.0 9.2 8.3 19.4 19.5 20.5 Thai Beverage Public THBEV SP SGD 0.845 n.a. 15,188 20.6 18.3 17.0 4.1 3.6 3.3 16.3 15.0 13.9 19.7 21.2 20.7 A v erage 28.8 26.2 24.1 29.6 22.5 21.3 16.6 15.4 14.3 55.6 78.6 81.4

Other developed Asian markets Asahi Group Holdings 2502 JP JPY 4800 n.a. 20,801 15.5 13.5 12.3 1.8 1.6 1.4 10.8 10.0 9.2 11.9 12.6 12.1 Kirin Holdings 2503 JP JPY 2235 n.a. 18,306 32.9 14.1 12.9 2.1 2.1 1.9 12.0 9.4 8.6 6.5 15.1 15.5 Sapporo Holdings 2501 JP JPY 2436 n.a. 1,720 43.6 23.9 22.6 1.1 1.1 1.1 12.2 12.7 12.5 0.0 4.7 4.9 Hitejinro 000080 KS KRW 30000 n.a. 1,771 94.0 29.1 25.1 1.8 1.9 1.8 13.0 9.4 8.8 1.8 6.6 8.0 A v erage 46.5 20.2 18.2 1.7 1.7 1.6 12.0 10.4 9.8 5.1 9.8 10.1

Multinational Companies Anheuser-Busch Inbev ABI BB EUR 66.15 n.a. 144,889 16.5 16.1 14.7 2.0 1.8 1.7 18.9 11.8 11.3 13.5 12.4 12.4 Carlsberg B CARLB DC DKK 1010 n.a. 22,357 23.1 22.1 20.0 3.4 3.4 3.3 11.5 11.2 10.7 14.8 15.9 16.9 Pernod-Ricard RI FP EUR 165.45 n.a. 47,634 30.0 24.5 21.9 2.7 2.6 2.5 19.5 17.2 15.8 9.5 10.6 11.6 Boston Beer 'A' SAM US USD 396.64 n.a. 4,821 47.1 35.0 29.3 6.5 5.7 5.0 25.3 19.3 16.6 18.2 18.4 19.8 Molson Coors Beverage Company B TAP US USD 55.29 n.a. 11,964 49.6 14.2 13.6 0.9 0.8 0.8 12.5 9.2 9.2 1.8 6.1 6.3 A v erage 30.7 22.1 19.9 3.9 3.7 3.4 17.5 14.4 13.4 13.2 17.0 17.9

# FY20: FY21; FY21: FY22 Source: Thomson Reuters, *DBS HK

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Company Guide

Budweiser Brewing Company APAC

Company Background

Largest brewer in APAC. BUD APAC is the largest brewer in Asia Pacific region by retail sales value and the second largest Business segment comparison by sales volume in 2018, with a market share of 13.8% and 13.5% respectively. It is also the most profitable brewer in APAC % of % of West total APAC East total Asia Pacific in terms of FY18 EBITDA margin. Principle China, India, South Korea, New Business segments. The company operates through two countries Vietnam Zealand, Japan Sales segments: Asia Pacific East (primarily South Korea, Japan and volume 82m HL 85% 14m HL 15% New Zealand) and Asia Pacific West (China, India, Vietnam Capacity 137m HL 88% 19m HL 12% and exports elsewhere in Asia Pacific). Currently, we believe Capacity 60% NM 72.5% NM there are four key markets for the company: China (estimated utilisation 70-80% of revenue), South Korea, India, and Vietnam. Revenue US$5,155 m 76% US$1,585m 24% Multinational operations and extensive brand portfolio. It Normalised US$1,445 72% US$549m 28% produces, imports, markets, distributes and sells a portfolio EBITDA m comprising more than 50 beer brands which it owns or has No. of 50 89% 6 11% licensed. The brand portfolio includes well-known global breweries brands such as Budweiser, Stella Artois and Corona, as well as No. of c.4500 c.75% c.1500 c.25% distributors multinational brands and local brands, such as Hoegaarden, No. of POS 2m+ c.80% 500k+ c.20% Cass and Harbin. Source: Company Leading production capacity and extensive sales network. The company now operates through 56 breweries in Asia-Pacific markets (50 in China), with total production capacity of 157m hectolitres (HL), and 61 distribution centres across the region. The company also manage extensive sales network in both China and South Korea. As of 2019, the company had c.4,500 distributors/2m+ point of sales in China and c.1,500 distributors/500k+ point of sales in South Korea.

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Company Guide

Budweiser Brewing Company APAC

Key Management Team

Name Age Position Profile Jan Craps 42 Executive • Covering the company’s operations in China, East Asia, South Asia, South East Asia, and (杨克) Director and New Zealand CEO • Executive Chair of Carlton & United Breweries • Joined AB InBev in May 2002, and has experiences in marketing, sales, and logistics • Bachelor’s Degree in Business Engineering from KU Brussels • Master’s Degree in Business Engineering from KU Leuven • Board Member of the Melbourne Business School and member of the Corporate Advisor Board of the China Europe International Business School Renrong Wang 53 Executive • Solid experience in M&A, legal affairs, compliance, communications and external affairs (Frank) Director, • Joined the Group in Nov 2003 as a Legal Director of China (王仁荣) General Counsel • Acted as VP of Legal and Corporate Affairs of the Group, responsible for all BUs in Asia and Joint and VP of Legal and Corporate Affairs of APAC North Bachelor’s Degree in Philosophy Company Secretary from Nanjing University • Master’s Degree in Law from KU Leuven • PhD in Law from Fudan University • Independent Director of Shanghai Fudan Forward S&T Co., Ltd, Director of Guangzhou Zhujiang Brewery Co., Ltd., and holds directorships in several Chinese subsidiaries of the Company Hongsun Qian 53 Vice President of • Experienced HR professional: 16 years in consumer packaged goods and 8 years in (Linda) People pharmaceuticals; Held multiple positions with focus on people management since joining (钱红孙) the Group in 2007 • Master’s Degree of Art in Human Resources Management from De Montfort University; Certified Chartered Member of the Chartered Institute of Personnel and Development of the UK Yanjun Cheng 60 Vice President of • 37 years in beer industry with successful track record, and was Vice Chairman of the (程衍俊) Supply and Board of Directors of Tsingtao Brewery Logistics • Joined AB InBev as a Brewmaster and has held several positions in certain Chinese subsidiaries • Bachelor’s Degree in Engineering from Qilu University of Technology; completed a Brewing Programme at the invitation of the Bavarian Ministry of Economic Affairs and Transport in Munich, Germany; MBA Degree from CEIBS Goran Duric 46 Vice President of • Previous experience in sales and supply chain and in finance Logistics • Joined AB InBev in 2005 and held several positions related to supply and logistics since then • Bachelor’s Degree in Traffic Engineering from the University of Novi Sad Keith Davies 39 Vice President of • 13 years of experience in the beer industry with solid experience in finance, sales, shared Solutions services and technology • Joined AB InBev in 2006 as a National Budgeting and Business Performance Manager, and held various positions within the Solutions function • Bachelor’s Degree in Applied Sciences (Engineering Science) from the University of Toronto Guilherme 36 Chief Financial • Solid experience in banking industry, holding positions in different investment banks Castellan Officer across different functions and geographical areas from 2004 to 2013 • Joined AB InBev in 2013 as a Director in the Global Treasury team; Mr. Castellan has been serving as a director of Guangzhou Zhujiang Brewery since 2018 • Bachelor’s Degree in Business Administration from Fundacao Getulio Vargas Source: IPO Prospect

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Company Guide

Budweiser Brewing Company APAC

Key Management Team (con’t)

Qi Che (Matt) 46 Vice President of • Over 20 years of experience in marketing and sales (车祁) Marketing • Joined the Group in 2006 and held various positions in trade marketing and marketing in certain Chinese subsidiaries of the Group • Led the development of effective market strategies in increasing the popularity and influence of the brands of the Company through sponsorship of the FIFA World Cup and the NBA • Bachelor’s Degree in Arts from the University of Birmingham • Master’s Degree in Science (Marketing) from the University of Birmingham Jan Clysner 47 Vice President of • Over 16 years of experience in the beer industry Procurement • Joined AB InBev in 2002 and held several roles in Sourcing and Procurement within the and Group Sustainability • Degree in Applied Economical Sciences from Hasselt University Frederico Freire 48 BU President of • 23 years of experience in the beer industry since he joined AB InBev in June 1996 as a China Logistics and Procurement Manager • Mr. Freire successively served in different positions and entities in Sales Operations Management and started working in Asia • Bachelor’s Degree in Electrical Engineering from Universidade de Pernambuco • Master’s Degree in Production Engineering from Universidade Federal de Pernambuco • Completed Specialization Course in Business Management in Universidade de Pernambuco Zhen Zhou (Luke) 40 Vice President of • 11 years of experience in the beer industry with a deep knowledge of shopper insight, (周臻) Strategy, PMO sales strategy, sales management, business analytics and cooperate strategy and Analytics • Joined the Group in June 2008 as an Associate Director of PPM of BU Central and East China and successively acted as the China Pricing • Director, the Director of Sales Project, the Director of National Retail • Business and the General Manager of Guangdong/Hainan of BU China • Master’s Degree in Applied Mathematics from Peking University Ben Verhaert 43 BU President of • 17 years’ experience in the beer industry with a solid track record in sales, logistics and South Asia country and business unit management • Worked with AB InBev as the Sales Representative and Logistics Manager of S.A. Interbrew Belgium from 2001 to 2005 and successively held the positions of Distribution Manager, Depot and Field Sales Manager, and Group Account Manager • Chair of the board of directors of Anheuser-Busch InBev India Limited (formerly known as SABMiller India Limited) since May 2017 • Bachelor’s Degree in Management from Catholic University of Louvain Bruno Cosentino 45 BU President of • More than 21 years of experience in the beer industry with solid experience in marketing East Asia and sales having been exposed to different challenges in different cultures and beer segments • Mr. Cosentino also holds the position of Chair and President of Oriental Brewery Co., Ltd., a member of the Group, since January 2018 • Bachelor’s Degree in Business from the Santa Catarina State University Chia-hung Hsu 49 BU President of • Mr. Hsu joined the Group as BU President of North China in November 2010 (John) Southeast Asia • He served as the Vice President of High End of China of the Group from April 2016 to (徐嘉宏) December 2018. • Bachelor of Arts from the National ChengChi University • MBA Degree from Washington University in St. Louis Source: IPO Prospect

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Company Guide

Budweiser Brewing Company APAC

CRITICAL FACTORS TO WATCH Organic volume growth of APAC East

4 1.9 2 Critical Factors 2 Product mix a key focus. Amid flattish and even declining 0 industry volume in both China and South Korea, continuous -2 premiumisation has helped to improve BUD APAC’s product -4 -2 mix and hence drive up ASP and sustain revenue growth. We -6 want to highlight BUD APAC’s premiumisation progress under -8 two main perspectives: 1) product mix improvement, for -10 -8.1 instance, launching more expensive products under the brand 18A 19F 20F 21F of Harbin, and 2) market share gain in premium beer segment Organic volume growth of APAC West in principal markets, i.e. China and South Korea. 4 3 2.5 Industry volume growth: A critical factor. China's beer industry 2 volume growth has been lacklustre. A three-year decline (- 0 4.5% in 2015, -4.4% in 2016, and -0.7% in 2017) was followed by a slight rebound of 0.5% and 1% in FY18 and -2 10M19 respectively. We believe that industry volume should -1.9 -4 continue to stay stagnant due to demographic structure -4 changes and consumers’ increasing health-conscious mindset. -6 Any industry recovery, especially in nightlight channel where 18A 19F 20F 21F the company has a greater exposure, should help BUD APAC to Organic ASP growth of APAC East have greater economies of scale and perform better. 4 3 2.7 Continuing market share expansion the recipe to success. 2.5 Leveraging on its comprehensive brand matrix covering all price 2 segments, BUD APAC’s retail volume share increased from 1.5 12.9% in 2013 to 16.2% in 2018 in China. It is worth noting that the company has also enhanced its market share by 6ppts to 46% in the premium beer segment in China. Separately, the 0 company also commands c.60% volume share in Korea. We 18A 19F 20F 21F believe further market share gains, especially in the premium Organic ASP growth of APAC West beer segment, could improve the company’s future sales 8 growth and profitability. 6.6 6 5.6 6 M&A takes BUD APAC to new heights. BUD APAC has been 4 pursuing the M&A path to achieve inorganic growth and clinch 4 the industry leadership position. Domestically, M&As have helped BUD APAC gain access to local beer brand “Harbin” 2 and secure its base markets in Northeastern China. These M&As in the past, e.g. the company’s acquisition of Oriental 0 18A 19F 20F 21F Brewery, also gave BUD APAC a chance to gain market Organic Normalized EBITDA Margin presence and better pricing power. Going forward, we expect 40 36.1 the company to continue to leverage on M&As to tap the fast- 33.2 34.5 growing opportunities in SEA. 35 29.6 30

25

20

15 10 5 0 18A 19F 20F 21F Source: Company, DBS HK

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Company Guide

Budweiser Brewing Company APAC

Appendix 1: A look at Company's listed history – what drives its share price?

Event chart

HK$ 35.0

2 30.0 1 3

25.0

20.0

15.0

Jan-20

Oct-19

Feb-20

Sep-19

Dec-19 Nov-19

Date Events 1 30-Sep-19 Launched IPO priced at HK$27 per share and raised US$5.75 billion in gross proceeds (as the overallotment was fully exercised) 2 25-Oct-19 BUD APAC announced 3Q19 results with South Korea sales volume declining by 17% y-o-y. 3 20-Jan-20 China's official channel indicated coronavirus has human-to-human transmission

Source: Thomson Reuters, Company, DBS HK

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Company Guide

Budweiser Brewing Company APAC

Balance Sheet: Solid net cash position. Thanks to strong operating cash inflow Leverage & Asset Turnover (x) and low capex over the years, Budweiser APAC ended FY18 41.82% 41.73% 3.00% 42% with c.US$1bn net cash. We believe the strong net cash 41.32% position would likely be sustained over the next few years. 2.00% 41% Such a strong balance sheet could be helpful for suitable 1.42% 1.40% 40.42% overseas expansion opportunities, hence improving the 0.96% 0.89% 0.83% company’s business outlook. 1.00% 40%

Share Price Drivers: 0.00% 39% Market share expansion, especially in premium beer segment. 17A 18A 19F 20F 21F Given China’s saturated beer consumption volume, sales Gross Debt to Equity (LHS) Asset Turnover (RHS) Capital Expenditure growth is dependent on market share gains, as well as 700 premium product sales, which is still growing in China’s beer 599 563 560 560 560 industry. 600 500 Potential M&As. We opine that any meaningful renowned 400 brand acquisition should boost BUD APAC’s business in 300 emerging Asian countries and take its share price to the next 200 level. 100 0 Key Risks: 17A 18A 19F 20F 21F Intensifying competition in premium segment, regulatory risks ROE in principal markets, volatility in raw material prices, multi- country operations lead to foreign exchange risk.

Environmental, Social, Governance: Green energy initiative. AB InBev has a group-wide goal (including BUD APAC) to have all its electricity purchased from renewable sources by 2025. Its renewable project of Foshan brewery marks a breakthrough significance. The brewery’s renewable energy project has a total investment of RMB 24.5 million, and a total installed capacity of 4.9 megawatts. It is Forward PE Band expected that by the end of 2019, 9 of its Chinese breweries will be installed with photovoltaic panels that cover a combined floor area of 410,000 square meters, equal to the size of 57 standard football pitches. Altogether, they stand for a total installed capacity of 41 megawatts and an estimated annual power output of 41 million kilowatt hours.

Company Background BUD APAC is the largest beer company in Asia Pacific in terms of sales value in 2018. In sales volume terms, the company ranked No.1 in South Korea (60%), No.2 in India (23%) and PB Band No.3 in China (16%) last year, according to GlobalData. Specifically, in the premium and super premium segments in China, BUD APAC is also ranked No.1 in terms of sales volume.

Source: Company, DBS HK

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Key Assumptions FY Dec 2018A 2019F 2020F 2021F Organic volume growth of APAC East 1.9 (8.1) (2.0) 2.0 Organic volume growth of APAC West 2.5 (1.9) (4.0) 3.0 Organic ASP growth of APAC East 2.7 2.5 1.5 3.0 Organic ASP growth of APAC West 5.6 6.6 4.0 6.0 Organic Normalized EBITDA Margin 29.6 33.2 34.5 36.1

Segmental Breakdown (US$ m)

FY Dec 2017A 2018A 2019F 2020F 2021F Revenues (US$ m) APAC East 1,462 1,585 1,400 1,379 1,448 APAC West 4,637 5,155 5,177 5,065 5,585 Total 6,099 6,740 6,577 6,444 7,034 EBITDA (US$ m) APAC East 512 549 466 438 465 APAC West 1,140 1,445 1,718 1,784 2,073 Total 1,652 1,994 2,184 2,223 2,537 EBITDA Margins (%) APAC East 35.0 34.6 33.3 31.8 32.1 APAC West 24.6 28.0 33.2 35.2 37.1 Total 27.1 29.6 33.2 34.5 36.1 Source: Company, DBS HK

Income Statement (US$ m) FY Dec 2017A 2018A 2019F 2020F 2021F Revenue 6,099 6,740 6,577 6,444 7,034 Cost of Goods Sold (2,944) (3,240) (3,109) (3,010) (3,257) Gross Profit 3,155 3,500 3,467 3,434 3,776 Other Opng (Exp)/Inc (2,188) (2,202) (1,921) (1,814) (1,846) Operating Profit 967 1,298 1,547 1,619 1,930 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 8 17 20 24 29 Net Interest (Exp)/Inc (51) (18) 16 17 27 Dividend Income 0 0 0 0 0 Exceptional Gain/(Loss) (45) (42) (120) (40) (40) Pre-tax Profit 879 1,255 1,463 1,621 1,946 Tax (307) (296) (453) (405) (487) Minority Interest 2 (1) (1) (1) (1) Preference Dividend 0 0 0 0 0 Net Profit 574 958 1,008 1,215 1,459 Net Profit before Except. 619 1,000 1,128 1,255 1,499 EBITDA 1,652 1,994 2,184 2,223 2,537 Growth Revenue Gth (%) N/A 10.5 (2.4) (2.0) 9.2 EBITDA Gth (%) N/A 20.7 9.5 1.8 14.1 Opg Profit Gth (%) N/A 34.2 19.2 4.7 19.2 Net Profit Gth (%) N/A 66.9 5.2 20.5 20.1 Margins & Ratio Gross Margins (%) 51.7 51.9 52.7 53.3 53.7 Opg Profit Margin (%) 15.9 19.3 23.5 25.1 27.4 Net Profit Margin (%) 9.4 14.2 15.3 18.9 20.7 ROAE (%) N/A 9.4 9.8 11.3 12.5 ROA (%) N/A 5.9 6.4 7.6 8.7 ROCE (%) N/A 8.3 9.4 10.5 11.6 Div Payout Ratio (%) 2.8 41.1 40.0 40.0 40.0 Net Interest Cover (x) 19.0 72.1 NM NM NM Source: Company, DBS HK

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Balance Sheet (US$ m) FY Dec 2017A 2018A 2019F 2020F 2021F

Net Fixed Assets 4,040 3,790 3,582 3,626 3,628 Invts in Associates & JVs 367 403 400 400 400 Other LT Assets 9,480 8,989 8,889 8,823 8,760 Cash & ST Invts 1,761 1,667 1,769 2,529 3,620 Inventory 371 417 396 379 411 Debtors 697 580 541 530 578 Other Current Assets 44 16 12 12 12 Total Assets 16,760 15,862 15,589 16,299 17,408

ST Debt 90 112 100 100 100 Creditors 2,567 2,547 2,578 2,495 2,700 Other Current Liab 1,887 1,809 1,798 1,798 1,798 LT Debt 57 30 0 0 0 Other LT Liabilities 1,812 1,192 710 710 710 Shareholder’s Equity 10,328 10,153 10,383 11,175 12,078 Minority Interests 19 19 20 21 22 Total Cap. & Liab. 16,760 15,862 15,589 16,299 17,408

Non-Cash Wkg. Capital (3,342) (3,343) (3,427) (3,372) (3,498) Net Cash/(Debt) 1,614 1,525 1,669 2,429 3,520 Debtors Turn (avg days) N/A 34.6 31.1 30.3 28.7 Creditors Turn (avg days) N/A 366.9 378.3 384.7 357.8 Inventory Turn (avg days) N/A 56.5 60.0 58.8 54.4 Asset Turnover (x) NM 0.4 0.4 0.4 0.4 Current Ratio (x) 0.6 0.6 0.6 0.8 1.0 Quick Ratio (x) 0.5 0.5 0.5 0.7 0.9 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Source: Company, DBS HK

Cash Flow Statement (US$ m) FY Dec 2017A 2018A 2019F 2020F 2021F

Pre-Tax Profit 879 1,255 1,463 1,621 1,946 Dep. & Amort. 685 696 637 603 607 Tax Paid (307) (296) (453) (405) (487) Assoc. & JV Inc/(loss) (8) (7) (7) (7) (7) (Pft)/ Loss on disposal of FAs (26) (44) 0 0 0 Chg in Wkg.Cap. 73 54 87 (55) 125 Other Operating CF 35 26 (1) (1) (1) Net Operating CF 1,331 1,684 1,726 1,756 2,184 Capital Exp.(net) (563) (599) (560) (560) (560) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV (253) (4) (149) 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF 284 131 50 50 50 Net Investing CF (532) (472) (659) (510) (510) Div Paid (16) (394) (920) (486) (583) Chg in Gross Debt (83) (3) 0 0 0 Capital Issues 246 (233) 4,867 0 0 Other Financing CF (334) (607) (4,867) 0 0 Net Financing CF (187) (1,237) (920) (486) (583) Currency Adjustments 110 (67) 0 0 0 Chg in Cash 722 (92) 147 760 1,091 Opg CFPS (US$) 0.09 0.12 0.12 0.14 0.16 Free CFPS (US$) 0.06 0.08 0.09 0.09 0.12

Source: Company, DBS HK

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DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return, i.e., > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 25 Feb 2020 12:29:38 (HKT) Dissemination Date: 25 Feb 2020 18:43:19 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified.

GENERAL DISCLOSURE/DISCLAIMER

This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBS HK.

The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The DBS Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking services for these companies.

Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to update the information in this report.

This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned schedule or frequency for updating research publication relating to any issuer.

The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that: (a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and (b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein.

Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report.

DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department, has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months and does not engage in market-making.

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ANALYST CERTIFICATION The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s) primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in China Resources Beer Holdings Co Ltd (291 HK) recommended in this report as of 21 Feb 2020.

DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Thai Beverage PCL (THBEV SP) recommended in this report as of 31 Jan 2020.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research Report.

3. Compensation for investment banking services: DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced: DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12 months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

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RESTRICTIONS ON DISTRIBUTION General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Australia This report is being distributed in Australia by DBS Bank Ltd, DBSVS or DBSV HK. DBS Bank Ltd holds Australian Financial Services Licence no. 475946.

DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong Kong Securities and Futures Commission under the laws of Hong Kong, which differ from Australian laws.

Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

Hong Kong This report is being distributed in Hong Kong by DBS Bank Ltd, DBS Bank (Hong Kong) Limited and DBS Vickers (Hong Kong) Limited, all of which are registered with or licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities. DBS Bank Ltd., Hong Kong Branch is a limited liability company incorporated in Singapore.

Indonesia This report is being distributed in Indonesia by PT DBS Vickers Sekuritas Indonesia. Malaysia This report is distributed in Malaysia by AllianceDBS Research Sdn Bhd ("ADBSR"). Recipients of this report, received from ADBSR are to contact the undersigned at 603-2604 3333 in respect of any matters arising from or in connection with this report. In addition to the General Disclosure/Disclaimer found at the preceding page, recipients of this report are advised that ADBSR (the preparer of this report), its holding company Alliance Investment Bank Berhad, their respective connected and associated corporations, affiliates, their directors, officers, employees, agents and parties related or associated with any of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No. 198600294G), both of which are Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd and/or DBSVS, may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact DBS Bank Ltd at 6327 2288 for matters arising from, or in connection with the report. Thailand This report is being distributed in Thailand by DBS Vickers Securities (Thailand) Co Ltd. United This report is produced by DBS HK which is regulated by the Hong Kong Monetary Authority

Kingdom This report is disseminated in the United Kingdom by DBS Vickers Securities (UK) Ltd (“DBSVUK”). DBSVUK is authorised and regulated by the Financial Conduct Authority in the United Kingdom.

In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and associated corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of DBSVUK. This communication is directed at persons having professional experience in matters relating to investments. Any investment activity following from this communication will only be engaged in with such persons. Persons who do not have professional experience in matters relating to investments should not rely on this communication. Dubai This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate International Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank Financial Ltd., (DIFC Branch) is regulated by The Dubai Financial Services Authority. This research report is intended only for Centre professional clients (as defined in the DFSA rulebook) and no other person may act upon it.

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United Arab This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined Emirates in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. This report is for information purposes only and should not be relied upon or acted on by the recipient or considered as a solicitation or inducement to buy or sell any financial product. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situation, or needs of individual clients. You should contact your relationship manager or investment adviser if you need advice on the merits of buying, selling or holding a particular investment. You should note that the information in this report may be out of date and it is not represented or warranted to be accurate, timely or complete. This report or any portion thereof may not be reprinted, sold or redistributed without our written consent. United States This report was prepared by DBS HK. DBSVUSA did not participate in its preparation. The research analyst(s) named on this report are not registered as research analysts with FINRA and are not associated persons of DBSVUSA. The research analyst(s) are not subject to FINRA Rule 2241 restrictions on analyst compensation, communications with a subject company, public appearances and trading securities held by a research analyst. This report is being distributed in the United States by DBSVUSA, which accepts responsibility for its contents. This report may only be distributed to Major U.S. Institutional Investors (as defined in SEC Rule 15a-6) and to such other institutional investors and qualified persons as DBSVUSA may authorize. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact DBSVUSA directly and not its affiliate. Other In any other jurisdictions, except if otherwise restricted by laws or regulations, this report is intended only for qualified, jurisdictions professional, institutional or sophisticated investors as defined in the laws and regulations of such jurisdictions.

DBS Bank (Hong Kong) Limited 13 th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong Tel: (852) 3668-4181, Fax: (852) 2521-1812

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DBS Regional Research Offices

HONG KONG MALAYSIA SINGAPORE DBS Bank (Hong Kong) Ltd AllianceDBS Research Sdn Bhd DBS Bank Ltd Contact: Carol Wu Contact: Wong Ming Tek (128540 U) Contact: Janice Chua 13th Floor One Island East, 19th Floor, Menara Multi-Purpose, 12 Marina Boulevard, 18 Westlands Road, Capital Square, Marina Bay Financial Centre Tower 3 Quarry Bay, Hong Kong 8 Jalan Munshi Abdullah 50100 Singapore 018982 Tel: 852 3668 4181 Kuala Lumpur, Malaysia. Tel: 65 6878 8888 Fax: 852 2521 1812 Tel.: 603 2604 3333 Fax: 65 65353 418 e-mail: [email protected] Fax: 603 2604 3921 e-mail: [email protected] e-mail: [email protected] Company Regn. No. 196800306E

INDONESIA THAILAND PT DBS Vickers Sekuritas (Indonesia) DBS Vickers Securities (Thailand) Co Ltd Contact: Maynard Priajaya Arif Contact: Chanpen Sirithanarattanakul DBS Bank Tower 989 Siam Piwat Tower Building, Ciputra World 1, 32/F 9th, 14th-15th Floor Jl. Prof. Dr. Satrio Kav. 3-5 Rama 1 Road, Pathumwan, Jakarta 12940, Indonesia Bangkok Thailand 10330 Tel: 62 21 3003 4900 Tel. 66 2 857 7831 Fax: 6221 3003 4943 Fax: 66 2 658 1269 e-mail: [email protected] e-mail: [email protected] Company Regn. No 0105539127012 Securities and Exchange Commission, Thailand

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