As one of the country's two largest brewers by volume, the company has braced itself for the challenges ahead by switching its focus from product operation to brand operation.
The strategy appears to be working. The sales volume of its major brand, "Tsingtao", and six subsidiary brands, which include Hans, Laoshan and Shanshui, represented 66% of its 2005 sales, up from 59% in 2004.
Net profits rose 25% year-on-year in the first nine months of 2006 to US$52.6 million on the back of increasing beer sales.
Risks of profitability erosion exist as competition intensifies and perennial over-supply problems escalate, especially in lucrative regional markets. The company's exposure to the Qingdao region and Guangdong province, which each account for around 30% of nationwide sales, could also threaten the company if a price war can be initiated there by its competitors.
Any profitability loss will be exacerbated by a growing advertising budget, which is a vital part of the company's brand-building plans.
On the plus side, Tsingtao Brewery has slowed down its pace of acquisition and capacity investment and cleaned up its cash and debt repayment position, reducing its gross debt-total capital ratio from 43.2% to 18.8%.
And when it comes to developing its business, the company can turn to the expertise of Anheuser-Busch, which has been a strategic investor since 1993 and currently has a 27% stake
As competition comes to a head in China's beer sector over the coming years, it's going to be tough for Tsingtao. However, it faces the future knowing it has done everything it can in terms of preparation.
Shanghai Shentong Metro 600834.SH
Catch a subway in Shanghai and the crush experienced is testimony to the soaring demand for services provided by Shanghai Shentong Metro, the only listed company in the Chinese rail traffic industry.
Shanghai's four metro lines carry more than 1.75 million passengers daily, with volumes increasing 10-15% every year. In fact, growth is so strong the city was forced to increase fares in 2005 in order to reduce congestion.
Shentong Metro owns the management rights to Line No. 1, the most profitable of the four lines, accounting for around 50% of the city's total transit revenue.
It also handles metro construction for the city as the government's investment arm, meaning it could be one of the few beneficiaries of the 2010 World Expo, which is predicted to cost the city around US$1 billion more than it will bring in.
Shanghai plans to build four new lines totaling 120 kilometers for the event. This will more than double the current reach of just 112 kilometers.
A consortium of 11 Chinese banks, including Industrial and Commercial Bank of China, Bank of China, Agricultural Bank of China and China Merchants Bank, has agreed to provide a US$3.7 billion building loan to Shentong Metro for the project.
Investing in infrastructure for a one-off event is a gamble, but there is little chance the end of the expo will be the end of the line for Shanghai's new metro routes. In addition to increasing capacity on existing routes, the metro system is also being extended into parts of the city currently only served by bicycles, buses, taxis and private cars, thereby widening its customer base.
With increasing traffic congestion and an enhanced awareness of pollution's toll on the environment, the government has a strong incentive to implement policies favorable to its mass-transit systems.
Expect the Shanghainese to hurtle along Shentong Metro's tracks as fast as the company can supply them.
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