Aug. 19 (NBD)-- China's beer stocks went up for two consecutive trading days on strong interim performance of brewing companies.

Shares of Tsingtao Brewery Co. Ltd (600600.SH), one of China's leading beer enterprises, soared a daily limit of 10 percent last Friday (August 16) and added a further 1.95 percent to 51.65 yuan per share (7.33 U.S. dollars) when the market closed on Monday.

Another brewing giant, China Resources Beer Holdings Co. Ltd ("CR Beer", 00291.HK) saw its shares hike by 7.84 percent in the prior trading day and closed at 41 Hong Kong Dollar (5.23 U.S. dollars) per share on Monday, represented a rise of 4.59 percent. 

Both companies announced last Friday their encouraging interim results for 2019.

"The current increase in beer stocks is an reaction to the improvement in the beer industry structure. There will see a stable and positive growth in beer stocks when their sales volume consistently balloon," said industry insider Zhu Danpeng to National Business Daily (NBD). 

File photo/NBD

Structural improvement pushes up CR Beer's performance

In the first six months of 2019, CR Beer's turnover added 7.2 percent to 18.83 billion yuan from the year-ago period and its profit attributable to shareholders rocketed to 1.87 billion yuan, with the year-over-year growth rate hiking to 24.1 percent, according to CR Beer's latest financial results.

NBD noticed that the structural improvement on CR Beer's product portfolio boosted its recent outperformance. 

In April 2019, the company launched its new mid- to high-end product MARRSGREEN to further deepen its premiumisation strategy, along with its Craftsmanship and Brave the World superX, another two products aiming at the premium market and coming out last year.

"Benefitting from the brand repositioning strategy, further upgrade of product mix and contribution from the acquisition of Heineken China, the sales volume of the mid- to high-end beer expanded by 7.0 percent. The overall average selling price of CR Beer increased by 4.5 percent year-on-year." stated the company in its latest financial report.

As part of the "going premium" strategy, back to August 2018, CR Beer and Heineken stroke a deal worth 3.1 billion U.S. dollars, under which Heineken's China operations including three breweries will be combined with CR Beer's operations while the former also gave the latter exclusive rights to use its Heineken brand in China. 

Besides the premiumisation strategy, the company also pursues capacity optimization and organizational restructuring by closing some of its brew houses. 

"Through decades of acquisition, CR Beer has a considerable amount of breweries and massive staff while their average salaries stand low and average ages are elder. We expect to improve employee efficiency, salary and competency. This work has been going on for three years and will be completed at the end of this year." remarked CR Beer's CEO Hou Xiaohai.

Tsingtao Brewery's H1 net profit up 25 pct year on year

Another Chinese brewing tycoon Tsingtao Brewery reported an 25.1 percent year-over-year rise of net profit attributable to shareholders in the first half year of 2019.

During the reporting period, Tsingtao Brewery has attained 16.55 billion yuan in operating revenue, representing an increase of 9.22 percent from the corresponding period in the previous year.

NBD noticed that the benefits accrued to the company from its optimization of brand and variety mix structure based on its interim results.

"By focusing on its product strategy and regional strategy, the Company (Tsingtao Brewery) has proactively carried out brand promotion, harnessed the brand and quality advantages of Tsingtao Beer, and further enhanced the mid-to high-end brand positioning of Tsingtao Beer." said the company in its report.

During the first half of the year, sales volume of the company's core brands has reached 2.360 million kl, an increase of 6.3 percent from the corresponding period in the previous year.

But industry analyst Zhu admitted that domestic brewing brands such as CR Beer and Tsingtao Brewery still have their limitations in the premium market when compared to influential international beer brands like Anheuser Busch Inbev (AB InBev).

According to filing to Hong Kong Exchanges and Clearing Market, Budweiser took up 46.6 percent of China's premium beer market by sale volume in 2018, more than triple the market share of its nearest competitor, Tsingtao Brewery.

Email: gaohan@nbd.com.cn