By Jacky Wong
Beer connoisseurs are living it up again in China--and getting more discerning about their ale. Barflies can celebrate as their drinking options expand, but an imminent brawl for control of the premium segment could weigh on already-fizzy beer shares.
Budweiser Brewing Co. APAC, the Asian unit spun off by Anheuser-Busch InBev in 2019, said its revenue in China last quarter grew 93% year over year while its earnings there before interest, taxes, depreciation and amortization more than tripled. In other words, beer drinkers are tossing back pints (or cans) again with gusto: Both metrics are higher than the same period in 2019. The company sells beer brands like Budweiser and Stella Artois in Asia. Revenue and profits at rival Tsingtao Brewery, which reported earnings last month, have also moved above pre-pandemic levels.
Since China has largely put the pandemic under control, beer sales in pubs and restaurants have also returned to normal. Such on-premise consumption accounts for 63% of premium beer sales, according to an April report from Bernstein.
But investors have already priced in the recovery, especially for local brewers. Tsingtao's Hong Kong-listed shares have gained 38% since the beginning of last year while shares of state-owned China Resources Beer have gained 48%. Budweiser APAC shares, on the other hand, are down 3%, partly because the company's other markets, such as South Korea, offer slower growth.
Investors may also be worried that Budweiser APAC's leading market share in the premium segment will be chipped away by its Chinese rivals. It is easy to see why every brewer wants to crack into the higher-end segment: China's beer market by value expanded 21% from 2016 to 2019 even though sales by volume only grew 0.6%, according to Euromonitor International. Chinese consumers may not have drunk more beers, but they are definitely becoming pickier.
CR Beer in particular could be a threat. It owns Snow, the country's most popular brand by volume, and bought Heineken's Chinese business in 2019. Heineken in return became a shareholder in CR Beer.
The scramble for the higher-end segment isn't cost-free though. For example, Tsingtao's selling and distribution expenses last quarter were equal to 22% of its revenue, compared with 17% for the same quarter in 2019. Shares of brewers are already trading at high valuations. CR Beer and Budweiser both trade above 40 times forward earnings while Tsingtao trades at about 30 times, according to FactSet.
For now, beer companies are reveling in the pleasant post-pandemic glow. The next step--a fierce, expensive battle for market share--might be less fun.
Write to Jacky Wong at JACKY.WONG@wsj.com
(END) Dow Jones Newswires