Event:
Tsingtao Brewery released its Q3 2008 report: in the first three quarters, the company realized operating revenue of Rmb12.89bn (+18% yoy), net profit attributable to parent of Rmb700mn (+24% yoy) and diluted EPS of Rmb0.53.
Our analysis and estimation:
In Q3 2008, performance shook off doldrums in the second quarter and returned to normal state. Income of main business enjoyed 21% year-on-year increase, while the increment stayed at only 9% for Q2 2008. Operating profit, net profit and net profit attributable to parent all saw different growth on the basis of unchanged period expenses ratio; negative growth in Q2 2008 was totally turned around.
Brand strategy was steadily boosted with top four brands taking up a proportion of 93.7%. For Q1-Q3 2008, the company sold beer of 4.481mn KL (+7% yoy), of which, top four brands sold 4.2mn KL (+28% yoy), 93.7% of the total (2ppt more than that of 1H2008 and 18ppt that of corresponding period in 2007); in addition, the company directly increased the price in 2008. The two factors led to ~10% increase in product price/ton. With cost pressure beyond our expectation this year, we believe profit growth depends on that of sales, while profitability is slightly susceptible to raw material price hikes.
We firmly deem the company the most valuable long-term investment within food and beverage industry of A-share listed market. Despite short-term fluctuations in Q2 2008, medium-long term elements such as 1) brand strategy; 2) development strategy; 3) organization construction and 4) operational management are the foundation and key basis for long-term investment, see details in-depth report Tsingtao Brewery (600600): Investment Value Basis Ascertained, Performance Turning Approached.
Investment suggestion:
We predict 2008 EPS to be around Rmb0.55, an increase of ~28% yoy (considering impact on income tax expense and net profit due to tax rate change in 2007) and maintain “Recommended” rating. Industrially, we insist on viewpoint in report Beer Industry: Impetuous Turning in 2008 proposed on Jan 1, namely, the industry begins direct appreciation from 2008 onwards.