CR Beer: Lowering Volume Projections Due to Low-End Product Weakness; Retain Fair Value Estimate

We expect soft demand in the low-end segment to weigh on narrow-moat China Resources Beer’s sales during the first half. We also slightly reduced our 2024 gross margin estimate by 60 basis points to account for operating deleverage. We keep our sales and marketing expenses ratio forecasts, leading to a 4% cut in our 2024 net income projection to CNY 5.77 billion. However, we leave our long-term forecasts largely unchanged. The subpremium beer portfolio has continued to outperform low-end products despite economic headwinds, suggesting the premiumization trend in the sector remains intact. We retain our fair value estimate of HKD 45 per share, which implies 25 times 2024 P/E, 14 times enterprise value/EBITDA, and a 1.7% dividend yield. We see shares as undervalued as the current share price should have largely reflected concerns over near-term earnings headwinds. That said, our preferred pick for the sector is Budweiser APAC, which is trading at the deepest discount to our fair value estimate. We expect the firm to be the major beneficiary of the premiumization trend in China over the long term.