China Resources Beer (00291. HK): Comments on the 2022 annual report of 22 years of high-quality ending, expecting accelerated growth of high-end products

China Resources Beer released its 2022 annual performance report. During the reporting period, the company achieved an operating income of 35.26 billion yuan in 22 years, +5.6% year-on-year; net profit attributable to the parent was 4.34 billion yuan, -5.3% year-on-year. Among them, 22H2 realized an operating income of 13.77 billion yuan, +3.9% year-on-year; net profit attributable to the parent was 540 million yuan, +83.1% year-on-year. Results slightly exceeded expectations.

In 22H2, sales growth accelerated month-on-month, and volume and price continued to rise throughout the year.

Volume: In 2022, the company will achieve a sales volume of 11.096 million kiloliters, yoy+0.4%. Among them, the sales volume in 22H2 will increase by 1.7% year-on-year, a month-on-month increase.

Price: In 2022, the ton price of wine is 3178 yuan/ton, yoy+5.2%. On the one hand, the ton price rise is due to the continuous upgrading of the company's product structure;

1) Star silver products listed in key markets Fujian, classic rapid growth, star silver also contributed a considerable increase;

2) From the national market perspective, the company further increased Heineken's coverage area and channels and occupied the terminal through the combination of SuperX+Star Silver. In terms of performance, Heineken has performed well in the leading high-end upgrade markets represented by Fujian, Zhejiang, Jiangsu, and Shanghai, and the brand potential continues to be released. Affected by the epidemic in 22 years, Chunsheng and SuperX, which accounted for a relatively high proportion of ready-to-drink channels, achieved single-digit growth. In 22 years, the company launched several new products, including the first ultra-high-end strong beer fermented wine, high-end product Black Lion Fruit Beer, Snowflake Whole Wheat Pure Raw, peach flavor and pineapple passion fruit lactic acid bacteria flavored carbonated drink "Snowflake Beer Gas."

The company's gross profit margin in 2022 will be 38.5%, -0.7pcts year-on-year, mainly due to rising prices of raw materials and packaging materials. In terms of expenses, in 2022, the company will adopt several measures to reduce costs and increase efficiency to control operating expenses. The sales expense ratio is 19.1%, which is -1.1pcts year-on-year; the management expense ratio is 9.4%, which is -1.4pcts year-on-year, mainly due to one-time impairment. In 21 years, it has been reduced, and the implementation of "tight life measures." To sum up, in 22 years, the core EBIT was 5.462 billion yuan (deducting the one-time employee compensation and resettlement expenses and the fixed asset impairment loss related to the closure of the factory in 22 years, a total of 235 million yuan), yoy+17%, exceeding market expectations. The 22-year core net profit rate is 12.8%, yoy+2.1pcts.

Beer consumption picked up rapidly at the beginning of 23, and the company expects that the sales volume and profit growth of high-end alcohol in 23Q1 will be the fastest level in recent years. In terms of regions, the company achieved rapid growth in markets with a high degree of high-end beer: in 23Q1, the company's sales volume in Fujian and Zhejiang markets achieved high double-digit growth, continuing sound trend; 23Q1 sales achieved low double-digit growth.

Despite the 22-year epidemic disturbance, Heineken's sales volume still grew 30%+. This is related to the company's product distribution in non-ready-to-drink channels, which partially offset the impact of the epidemic-disturbed RTD channel. Looking forward to 23 years, Heineken already has a particular brand potential and is expected to become a significant growth pole. We hope that Heineken sales will continue to grow by 30%+. The high growth rate of Heineken comes from the fact that Heineken has made key layouts across the country this year, expanding wider regions and deeper channels, Brand foundation, and sales growth.

In the medium and long term, the company's performance growth comes from the increase in the high-end rate of beer products on the one hand and the contribution from the second growth curve liquor on the other hand. In terms of high-end beer, high-end wine sales will account for 19% in 2022, and the proportion is expected to increase to 30%-35% in 2026. The company maintains the essential target of 3.5 million tons of high-end beer sales. In terms of the liquor business, the company adheres to long-term and solves the problem of liquor inventory quickly; and plans to have a particular scale of liquor business after 2026 and contribute a certain amount of profit.