Dongwu Securities: Restorative growth in the beer industry in the first quarter is expected to accelerate volume and price during the peak season

The Zhitong Finance App learned that Dongwu Securities released a research report saying that the beer sector's revenue in 25Q1 was 20.43 billion yuan, +3.68% year over year, and net profit to mother was 2,519 billion yuan, +10.62% year over year, showing restorative growth in the first quarter of 2025. On the one hand, the business pace supports a recovery in volume and price performance. 25Q1 sales performance is steady. 25Q2 and 25Q3 have entered a low base stage, and the sales pace is expected to improve marginally. At the same time, the general logic of upgrading the middle and high-end categories will continue to be implemented, and marginal acceleration in volume and price at the management level can be expected; on the other hand, the current pace of food and beverage repair is still relatively slow, and it is expected that policies will strengthen the repair of catering channels to form positive support for beer volume and price.

The main views of Dongwu Securities are as follows:

Phased pressure in 2024, restorative growth in 25Q1

Overall consumption was weak in 2024, with the lack of beer consumption scenarios and a decline in frequency, which in turn led to a decline in beer faucet sales, a margin of upgrading, and phased pressure on revenue, but due to continued cost flexibility, profits still achieved steady growth. After active removal from storage in the second half of 2024, 25Q1 revenue and profit all showed restorative growth. Specifically, in 2024, the beer sector's revenue was 68.038 billion yuan, -1.67% YoY, and net profit to mother was 7.290 billion yuan, +6.05% YoY. The beer sector's revenue in 25Q1 was 20.43 billion yuan, +3.68% year-on-year, and net profit to mother was 2,519 billion yuan, +10.62% year-on-year. The first quarter of 2025 showed restorative growth.

Volume and price are under phased pressure, cost flexibility continues, and profits continue to grow

1) Looking at the vertical time dimension, the sales volume and tonnage performance of beer brands in 2024 are clearly under pressure compared to previous years. On the one hand, this is due to weak consumption recovery in the domestic beer market, and on the other hand, leading companies also took the initiative to go to warehouses to ensure healthy channels. Looking at the first quarter of 2025, although the tonnage price performance is still weak, sales have shown restorative growth. 2) Since 2024, cost flexibility has been steadily realized, while upgrading and resilience has continued, and gross margin levels have been rising steadily throughout 2024. Although the 25Q1 tonne price declined, cost flexibility continued, and gross margin continued to rise. 3) Gross margin has been rising steadily, spending is relatively restrained, and the overall gross sales margin continues to improve, driving continuous profit growth.

After crossing the pressure level in the first quarter, volume and price are expected to accelerate in the future

At the offensive level, on the one hand, the operating pace supports a recovery in volume and price performance. 25Q1 sales performance is steady. 25Q2 and 25Q3 have entered a low base stage, and the sales pace is expected to improve marginally. At the same time, the general logic of upgrading the middle and high-end categories will continue to be implemented, and the marginal acceleration of volume and price at the management level can be expected; on the other hand, the current pace of food repair is still relatively slow, and it is expected that policies will strengthen the repair of catering channels to form positive support for beer volume and price.

On a defensive level, the current free cash flow of leading Chinese beer companies is expected to maintain a high level of quality, and it is worth looking forward to a steady increase in dividend rates and dividend rates. In the current round of beer industry upgrades since 2018, leading net interest rates have substantially increased, which is the core reason for the significant improvement in free cash flow; at the same time, construction expenses for intelligent large factories focusing on middle and high-end beer categories have gradually declined from a phased level, and subsequent capital expenditure is expected to fall back to a steady level. This is the logical support for the continued steady flow of free cash.

Looking at the cost rhythm, the cost of 25Q1 barley decreased by about 10% compared to 24Q1, and glass costs are still falling month-on-month. Compared with 24Q1, the cost of aluminum cans is relatively stable month-on-month, with a slight increase compared to 24Q1. Considering that barley and glass are still at a low level, it is expected that cost elasticity will continue in 2025.

Aspect of the target

Looking at the short-term level, channel inventory is currently at a relatively low level. Combined, it is gradually entering the peak beer consumption season. Tsingtao Brewery (600600.SH), which has both offense and defense, is preferred (volume and price rhythm improved, dividend rate 3% +), and Yanjing Brewery (000729.SZ), which continues to increase rapidly (U8 growth will continue). Looking at the medium term, if the consumer stimulus policy is implemented at an accelerated pace, it is expected that the food and distribution consumption scenario will improve. The beer sector is expected to usher in beta allocation opportunities, focusing on China Resources Brewery (00291), Pearl River Brewery (002461.SZ), Budweiser Asia Pacific (01876), and Chongqing Beer (600132.SH).

Risk Alerts

Macroeconomics fell short of expectations; food safety issues; competition for medium and high-end beer intensified.