Beer, even more than baijiu, has proven resilient to economic downturns in the world’s biggest market for the amber nectar. China beer sales remained strong throughout last year.
"China’s beer industry has recovered quite well with growth of 7-8% over 2009," said HSBC analyst Jessie Guo. "The industry is seeing strong consumption growth and this is a major upside."
Four main players – CR Snow (a joint venture between China Resources Enterprise, 0291.HK, and SAB Miller, SAB.LSE), Tsingtao Brewery (0168.HK; 600600.SH), Anheuser-Busch Inbev (BUD.NYSE), and Yanjing (000729.SZ) – together account for 40-50% of China’s beer market. Assorted regional players make up much of the rest, including Jinxing, Pearl, Chong-qing and Kingway Breweries. Across the board, growth seems set to continue.
"We have a very positive view on China’s beer market," said Nomura analyst Christine Peng, who has a "buy" rating on Tsingtao. "Market leaders like Tsingtao have been moving to increase their market share as sales volumes increase and this is positive for the sector as a whole."
Tsingtao, which runs second behind CR Snow with 14% market share, posted a net profit of US$183 million for January-October 2009, a year-on-year increase of 80%. The company’s fortunes were boosted by a 10.2% growth in sales volume to 49.2 million hectoliters – outperforming China’s beer market volume growth of 6.2% for the period.
"The strong results implied a 93% jump in third-quarter net profit to US$90 million," wrote Citi analyst Cici Lam in a recent report. She also has a "buy" on Tsingtao.
Established by Germans nearly a century ago, Tsingtao is one of the oldest brewers in China. Analysts expect it to continue along a path of consolidation that has seen a host of big brewers pick up stakes in smaller players.
However, Guo noted that while she is positive on China’s beer sector in the long term, there may be challenges in the medium term. "There are still some problems in terms of lower margins compared with global giant brewers as well as risks related to potential raw materials price hikes," she said.
Distribution may also become an issue for China’s beer makers, particularly as central and western regions become more attractive. Nevertheless, the size and potentially strong growth of those relatively untapped markets will still encourage brewers to shift their sights from the east coast, said Nomura’s Peng.
"The structure of consumption is changing and moving more inland toward central China," she said.