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高华2007年的中国啤酒行业深度报告

June 28, 2007

China: Beverages: Brewing

Initiate on top drop Tsingtao H (Buy); Tsingtao A, Yanjing (Neutral)

The world's largest beer market growing fast; consolidation slows

The world’s largest beer market, China, will account for 48% of incremental

global growth in 2005-2010E, according to Plato Logic. Over 2006-2010E,

we expect 12% volume CAGR, driven by ongoing urbanization and rising

affordability of beer as incomes rise. Compared with other beer markets,

however, profitability in China is low and the market remains fragmented.

We believe pricing power will remain limited in the next few years relative

to global players, due to intensifying competition among leading domestic

brewers and aggressive foreign players. As such, we believe earnings

growth will be driven mainly by volume expansion, although product mix

upgrades should help offset cost inflation. Despite intense competition,

consolidation is slowing with high acquisition prices and increasingly

scarce quality targets; most players are switching to organic growth plans.

Value reasonable in cash P/E and EV/EBITDA comparisons

Using DCF valuation to capture their strong cash flow, we initiate on

Tsingtao H-shares (0168.HK; Buy) with a HK$23 12-month target price (20%

potential upside); Tsingtao A-shares (600600.SS; Neutral) with a Rmb25

target price (13% potential downside); Yanjing (000729.SZ; Neutral) with a

Rmb16.8 target (12% potential upside). Brewers’ P/Es are higher than other

China food and beverage stocks, but we believe this is misleading as their

cash flows are stronger. Instead we look to EV/EBITDA multiples (in line

with peers) and cash P/Es (at a discount to peers) for better comparison.

Best buy idea - Tsingtao H-shares

We think Tsingtao is China’s most recognized beer brand. We expect 26%

earnings CAGR in 2006-2009E, which is higher than consensus as we are

more positive on the demand outlook and we believe falling impairment

provisions on fixed assets and goodwill will help boost earnings. We

expect 1H2007 results to indicate robust volume growth and improving

margins and that demand growth for beer in China will remain strong for

many years.

Risks - upside and downside

Downside: (1) raw material costs spikes; (2) weaker demand; (3) cut-throat

competition and marketing costs eating into ASPs. Upside: (1) higher

demand growth; (2) earlier-than-expected increases in pricing power.

Yifan Deng

+86(10)6627-3036 | yifan.deng@http://www.kaixindyy.com/doc/f90dec38376baf1ffc4fadc4.html Beijing Gao Hua Securities Company Limited The Goldman Sachs Group, Inc. does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. For Reg AC certification, see the text preceding the disclosures. For other important disclosures go to http://www.kaixindyy.com/doc/f90dec38376baf1ffc4fadc4.html/research/hedge.html. Analysts employed by non-US affiliates are not required to take the NASD/NYSE analyst exam.

高华2007年的中国啤酒行业深度报告

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