July twenty _ eighth$Budweiser Brewing Company APAC Limited (01876.HK) $Release the 2022 interim report results. Data show that Budweiser Brewing Company APAC Limited's income in the first half of the year was 3.453 billion US dollars, up 2.7 percent from the same period last year, and the net profit was 625 million US dollars, up 24.25 percent from the same period last year.

Under the haze of the epidemic, Budweiser Brewing Company APAC Limited's net profit still achieved rapid growth compared with the same period last year, which was unanimously favored by many institutions and raised the target price one after another.

Although Budweiser Brewing Company APAC Limited received support from a number of brokerages, the share price did not perform satisfactorily. By the close of trading on July 29, the company's share price had fallen 8.23% to HK $21.75 per share.

By raising the price, Budweiser Brewing Company APAC Limited's reported net profit is so beautiful.

Under the domestic epidemic, sales fell slightly by 1.4%, and the growth was recovered by price increases.

Specifically, Budweiser Brewing Company APAC Limited achieved a revenue of US $3.453 billion in the first half of the year, with an endogenous growth of 2.7%. The ETITDA was US $1.139 billion, and the endogenous growth was 0.4%.

From a regional point of view, revenue in the western Asia-Pacific region grew by 0.3% in the first half of 2022 and EBITDA fell by 5.1%. Among them, Q2 income increased by 0.8%, and BEITDA decreased by 12.1% compared with the same period last year.

In terms of volume, sales of 2022H1 and 2022Q2 in the western Asia-Pacific region fell by 2.5% and 1.4% respectively. Among them, the Chinese market was affected by the epidemic, 2022H1 and 2022Q2 fell 5.5% and 6.5% respectively compared with the same period last year, while 2021Q1 fell 4.3%. After the relaxation of epidemic control in June, the company's overall brand achieved high-unit growth, ultra-high-end and high-end brands achieved double-digit growth. In India, sales in India returned to pre-epidemic levels in the first half of the year. Coupled with the low base of the outbreak last year, the company's sales of high-end plus super-high-end brands in India doubled this year compared with the same period last year. In terms of prices, the 2022H1 and 2022Q2 tonnage prices in western Asia and the Pacific rose 2.9 per cent and 2.2 per cent year-on-year, of which the Chinese market tonnage prices rose 2.4 per cent and 1.7 per cent respectively.

In the eastern Asia-Pacific region, with the lifting of controls on catering channels, the company's performance in the eastern Asia-Pacific region continued to improve in the first half of the year, with revenue growing by 13.9% compared with the same period last year, of which Q2 revenue increased by 16.8% and EBITDA increased by 34.9% compared with the same period last year.

In terms of volume, the endogenous growth of 2022H1 and 2022Q2 sales in the eastern Asia-Pacific region was 7.1% and 7.4% respectively. The Korean market achieved high unit growth in 2022Q2, and there was good feedback from Cass White listed consumers. In terms of prices, the endogenous prices of 2022H1 and 2022Q2 increased 6.4% and 8.7% respectively compared with the same period last year. The price of 22Q2 tons of core products, including Casino and HANMAC beer, increased by 7.7% in South Korea, and the price increases of high-end brands even reached double digits, offsetting the downward pressure on tonnage prices brought about by the increase in the proportion of catering channels and the adjustment of alcohol duty, exceeding market expectations.

Overall, in addition to China affected by the epidemic, Q2 Budweiser Brewing Company APAC Limited's performance in India and South Korea has been significantly improved.

It is worth mentioning that because China is an important market for Budweiser Brewing Company APAC Limited, the impact on the Chinese market caused the company's sales in the first half of this year to fall 1.4 per cent to 4.5226 million tons compared with the same period last year. The reason why the company was able to stabilize its income mainly depended on the increase in unit price. Income per 100 litres increased by 4.2 per cent in the first half of the year.

In terms of gross profit margin, Budweiser Brewing Company APAC Limited's gross profit margin reached 50.7% in the first half of 2022, a year-on-year endogenous decline of 227bp; normalized profit margin before interest, tax, depreciation and amortisation reached 33.0%, down 74 basis points from the same period last year. Affected by raw material cost pressure, deleveraging of Chinese operations and other reduced operating income in the second quarter, earnings before normalization and profit before interest, tax, depreciation and amortization fell by 5.6% and 309 basis points respectively. As the domestic epidemic stabilizes and commodity prices fall, the company's costs are expected to fall further and gross margins are expected to rise.

Hot rigid demand + cost decline Beer companies are happy to blossom, Budweiser continuous price increases and sales decline year after year

For beer stocks, Q3 had a low base last year due to the epidemic, rainstorm, vaccination and other factors. From June to September in 2021, the output of beer enterprises above the national scale decreased by 8%, 6%, 10% and 4% respectively compared with the same caliber in 2019.

In addition, this summer, heat waves swept many countries around the world, and extremely high temperature weather also occurred in China. According to the National Climate Center, the ongoing La Nina event has been an important factor affecting the high temperature weather in the south since June this year. The National Climate Center predicts that temperatures in most areas from July 31 to August 15 will be higher than in the same period of the year, especially in Huang-Huai, Jianghuai, the middle and lower reaches of the Yangtze River and other places. Create a good atmosphere for beer consumption. Thus it can be seen that the consumption of Q3 beer is expected to grow rapidly this year.

In terms of cost, the direct material cost of beer is mainly brewing raw materials and packaging materials, including barley, rice / starch, hops, yeast and so on, and the packaging materials mainly include aluminum cans, glass bottles, cartons and so on. According to data disclosed by A-share listed beer companies, Cathay Pacific Securities estimates that direct material costs account for about 65% of operating costs, of which packaging materials account for about 45%, and brewing materials account for about 20%.

At present, the cost of the main packaging materials, which accounts for a relatively large proportion of beer direct materials, has shown a year-on-year downward trend after a sharp rise in the previous period. Glass price 22Q1 year-on-year increase shrank to 1% year-on-year, 22Q2 dropped 25% year-on-year. Aluminum prices fluctuated downward since 22Q2, 22Q1 grew 37% year-on-year, 22Q2 grew 11% year-on-year, growth momentum slowed down; corrugated price 22Q1 rose 3% year-on-year, 22Q2 fell 3% year-on-year. With the decline in the price of packaging materials, the gross profit margin of beer enterprises is expected to be significantly improved.

In fact, during the upward period of packaging materials, the gross profit margin of beer enterprises did not decline significantly through price increases, and Tsing Tao Beer was the only one among several major beer enterprises.

With the substantial upward of packaging materials, beer enterprises have also raised prices and upgraded their structure, which has become the development trend of beer enterprises. According to the guidance for the development of the industry in the 14th five-year Plan, it is expected that in the next five years: 1) the output will reach 39 million liters, with a compound growth rate of 2%; 2) the income will reach 210 billion yuan, and the compound growth rate will reach 7%; 3) the profit will reach 30 billion yuan, with a compound growth rate of 15%. According to the China Liquor Industry Association, the output of national regulated enterprises in the beer industry in 2021 was 35.624 million liters, an increase of 5.6 percent over the same period last year; sales revenue was 158.48 billion yuan, up 7.9 percent over the same period last year; and profits were 18.68 billion yuan, an increase of 38.4 percent over the same period last year. It can be seen that for a long time, the beer industry will still be in the development stage that the income growth mainly depends on the increase of tonnage price, and the profit growth rate is faster than the income growth rate than the sales growth rate.

As a subsidiary of the world's largest beer company, Budweiser Brewing Company APAC Limited's high-end and ultra-high-end brands in China are mainly foreign brands, including Budweiser, Corona, Fan Jiale and its acquisition of Harbin Beer 1990 Zang Zang; core and core + brands include Harbin Beer's other series and Xuejin beer; affordable brands include Jinshi Bai, Shuanglu and Yandangshan which they have acquired in China.

In addition to the high-end brand, in May last year, Budweiser Brewing Company APAC Limited also publicly confirmed that his Budweiser and other brands have raised prices. However, the consequence of frequent price increases is a continuous decline in sales. According to Budweiser Brewing Company APAC Limited's sales data from 2017 to 2021, his beer sales were 9.3966 million, 962.45 million, 931.68, 8.115 and 8.7880 million respectively, with an overall downward trend.

It is worth mentioning that, as domestic beer big brothers China Resources Beer, Tsing Tao Beer, in recent years also maintained a relatively high-speed growth, but also in the layout of high-end track, and the effect is obvious. Last year, the overall sales of China Resources Beer and Tsing Tao Beer were 11.06 million and 7.93 million liters respectively, with the former selling 1.87 million litres of sub-premium and above beer, while the latter accounting for 520 million liters, accounting for 16.9 percent and 6.56 percent of the total sales respectively. And judging from the overall sales last year, China Resources Beer's beer sales of 11.06 million liters have exceeded that of Budweiser Brewing Company APAC Limited.

In addition, domestic beer is also catching up with Budweiser Brewing Company APAC Limited in other ways. According to wind data, the net interest rates of Budweiser Brewing Company APAC Limited, China Resources Beer, Tsing Tao Beer and Chongqing Beer were 13.72%, 3.95%, 6.62% and 20.34% respectively in 2019, and 14.38%, 13.35%, 10.79% and 18.29% respectively by 2021. It is not difficult to see that with the strength of Wusu and Carlsberg high-end products. Chongqing beer gross profit margin and net profit rate have obvious advantages, while the net profit margin gap between China Resources Beer, Tsing Tao Beer and Budweiser Brewing Company APAC Limited has been narrowed.

Taken together, the profitability of beer companies is expected to be improved in the context of this year's hot weather and reduced prices of packaging materials. At present, the domestic beer industry is in the stage of structural upgrading, but what has not been seen for Budweiser Brewing Company APAC Limited, who is positioned at the high end, is a good thing. When the prices of high-end products have been raised many times, it is easy to appear the phenomenon of "unable to sell" products. For other domestic beer enterprises, the products originally positioned at the middle and low end still have advantages in terms of price after the price increase, so they are able to achieve a situation of simultaneous increase in volume and price.