9 Nov 2020 CMB International Securities | Equity Research | Sector Initiation China Beer and White Wine Sector Leaders to benefit from ASP growth and sector OUTPERFORM (Initiation) consolidation; top picks are Moutai and CR Beer We initiate coverage of China beer and white wine sectors with Outperform rating. China beer and white wine sector Premiumization and production efficiency improvement are key growth drivers of beer sector. We prefer CR Beer to Tsingtao Brewery because we expect CR Beer Albert Yip to deliver stronger adj. EPS CAGR through the partnership with Heineken. High- (852) 3900 0838 end white wine segment has a favorable competitive landscape. Its limited supply
[email protected] has supported price appreciation. We prefer Moutai to Wuliangye because we expect Moutai to raise ex-factory price earlier than Wuliangye. China’s premium and super Premiumization and production efficiency improvement are key growth premium beer sales value to grow drivers of beer sector. (1) Premiumization: China’s market share of the at 8.5% CAGR from 2018 to 2023E premium and super premium categories was 16.4% by volume in 2018, which (US$ bn) was significantly lower than the US/Korea (42.1%/25%). Value of premium and 70 super premium categories is estimated to increase by 8.5% CAGR from 2018 60 to 2023E. (2) Production efficiency: Plant closures, optimization of capacity 50 and sales mix increase of canned beer and bottled beer with returnable bottles 40 concept can enhance efficiency. (3) Industry consolidation: We expect sector 30 leaders to lower SG&A expenses ratio suggested by US market history.