Excluding staff settlement compensation and impairment on fixed assets relating to breweries closure, FY20 adj. NP rose 5% to RMB2,967mn, in line with our estimates. Raw materials costs were under control because certain procurement was done in advance. Premiumization trend saw acceleration in 4Q20. CR Beers targets to achieve high double-digit growth of sub-premium or above beer in FY21E. We maintain our TP at HK$73.10. CR Beer’s 2.0x FY21E PEG is lower than international peers’ 3.7x and Bud APAC’s 6.0x. Maintain Buy.
- Sub-premium or above beer growth in line. Total sales volume dropped 2.9% to 11.1mn kL due to outbreak of COVID-19 in 1H20 and exit of unprofitable businesses in certain regions (1ppt vol decline). That said, sub-premium or above beer volume increased 11.1% to 1.46mn kL, led by almost 100% growth of Heineken, followed by 40%+ growth of Super X. Premiumization trend saw acceleration given that such growth was stronger than 7% in 9M20.
- Continue to improve production efficiency. CR Beer further closed two inefficient breweries in 2H20 (four in FY20) and total breweries was 70 in end of 2020. Utilization rate rose 3.4ppt to 59.2% in FY20. The Company has set its five-year capacity plan. CR Beer could close 2-4 inefficient breweries every year, but the closure plan should be balanced with new capacity built.
- Raw materials costs under control so far. Spot prices of barley, can and paper box increased a lot. Because certain procurement of raw materials was secured in advance, management thinks the cost pressure was under control. If prices of raw materials increase further, the Company might raise price nationwide in mid-2021 or 2H21.
- Premiumization momentum continued in 2M21. By comparing 2M21 to 2M19, overall sales volume has recovered and sub-premium or above beer recorded double-digit growth. CR Beer targets to achieve high double-digit YoY growth of sub-premium or above beer in FY21E. The Company had set a CAGR target of 16.6% from 2020 to 2025E.
- Maintain Buy. We keep our estimates largely unchanged. Our TP remains at HK$73.10, still at 51x FY21E adj. P/E. We forecast CR Beer to deliver 21% adj. EPS CAGR in FY19-22E. Catalysts: better-than-expected revenue and margins. Risks: costs pressure, keen competition and food safety issues.
