Click the image above for details On July 15, as soon as the stock market opened, Tsingtao Brewery rose in both Shanghai and Hong Kong. During trading, with A-share price at 89.37 yuan and H-share at 68.95 Hong Kong dollars, its combined domestic and overseas securities market value reached 103 billion yuan, setting a new high for both stock price and market value since its 'A+H' listing in 1993. Eventually, A-shares closed at 86.60 yuan per share, with a total market value of 116.995 billion yuan. Tsingtao Brewery also became the first Chinese brand in the beer sector to join the '100 billion club'. Today, we discuss what breaking through 100 billion means for Tsingtao Brewery: is it the peak, or just the beginning?
-01- Stock Pool Expansion, Funds Accelerate Concentration in Head Stocks From a capital perspective, with the acceleration of IPOs and the implementation of the registration system on the Science and Technology Innovation Board and ChiNext, the number of listed companies is increasing. Soon, the number of listed companies on both exchanges will exceed 10,000. In such a situation, the stock pool is infinitely enlarged, but the funds entering the market cannot keep up with the pace of market expansion, leading to a clustering effect of funds. In the future, funds will inevitably accelerate flow into large and medium-sized enterprises with sound fundamentals and excellent tracks. As the leader of China's beer 'Big Four', Tsingtao Brewery has consistently held the top position among domestic beer companies, with a market value that once exceeded the sum of the other three (Chongqing Brewery, Zhujiang Brewery, and Yanjing Brewery). In terms of brand power, Tsingtao Brewery, with a century of development, also holds an advantage. In 2019, Tsingtao Brewery maintained the top brand value in China's beer industry with a brand value of 163.772 billion yuan.
In addition, in the recently released '2020 BrandZTM Top 50 Chinese Global Brand Builders' report jointly published by Kantar and Google, Tsingtao Brewery was selected and entered the top ten. The report points out that the international awareness of leading Chinese brands is steadily increasing, especially among young people. In the seven key overseas markets surveyed, 20% of young people (aged 18-34) were aware of the top 50 brands, compared to only 16% in 2018—a 25% growth in just two years. This data indicates that Tsingtao Brewery's international visibility is rising. Indeed, according to a survey by the Center for International Communication Studies of the China International Publishing Group, among food, beverage, alcohol, and catering products surveyed, Tsingtao Brewery had the highest overseas awareness, even higher than Moutai, whose market value exceeds 2 trillion yuan. BrandZTM historical data shows that during the 2008 financial crisis, the stock prices of the top 10 BrandZTM brand contribution portfolio recovered to pre-crisis levels within just six months, while the MSCI World Index took four and a half years. Even during the most severe impact of the COVID-19 pandemic this year, when the US stock market experienced multiple circuit breakers, the top 10 BrandZTM brand contribution portfolio only fell 37%, half the decline of the MSCI World Index. After the pandemic, Tsingtao Brewery has indeed recovered rapidly, leveraging opportunities such as the 'street stall economy' recovery and the 618 mid-year promotion to accelerate its escape from the pandemic's negative impact. Undoubtedly, brands with stronger risk resistance will naturally be favored by the capital market, and under the capital market's fund clustering effect, Tsingtao Brewery, as the domestic beer leader, will benefit.
Many securities institutions have also stated that since the second quarter, with the continued recovery of downstream catering and the favorable high-temperature weather, beer sales have performed well. The structural upgrade of the beer industry is an important future trend, and as the structure continues to upgrade, industry value will increase. They recommend paying attention to beer companies with good structure, and most of them prioritize Tsingtao Brewery.
-02- High-End Driven, Beer Enters the 'High-Profit' Era Tsingtao Brewery's favor in the capital market is not only due to its own corporate and brand advantages but also related to the industry environment. Since 2014, the overall development of the domestic beer market has gradually shifted from volume-driven to profit-driven. Why? Because after 2014, due to various reasons, total domestic beer sales experienced negative growth, and the industry's development speed continued to be weak until 2018 when it returned to positive growth. The fundamental reason is that the market has developed to an era of overcapacity, and under the relationship of supply exceeding demand, consumer demand inevitably shifts from drinking more to drinking better, driving the high-end development of beer products. In reality, beer sales have stabilized in recent years, and it is unlikely to see significant growth in the future, but the high-end trend in beer is recognized by the industry. Whether it's the rise of craft beer or the decline in low-end product sales and the continuous increase in high-end product share in major brands' performance reports, this is well validated. Industry and consumption upgrades will inevitably lead to brand concentration. Because high-end is not simply raising prices; it must also meet consumer needs in terms of brand culture, product quality, and other aspects, giving consumers value recognition. If consumers want to buy high-end products, the brand must first solve the problem of 'why should I believe this product is good'. Consumers' time is precious, and they often make quick decisions when choosing products, and only big brands can quickly provide trust endorsement. Therefore, it can be seen that except for some 'small and beautiful' brands, those that can truly produce products that meet the needs of mass consumption upgrades are all established big brands.
Taking Tsingtao Brewery as an example, the 2019 annual report shows that high-end products such as August, Hongyun Dangtou, Classic 1903, and Pure Draft Beer achieved sales of 1.856 million kiloliters, a year-on-year increase of 7.08%. The ton price also rose to 3,431 yuan, an increase of 5% compared to 2018. Thanks to this, the company achieved operating revenue of 27.98 billion yuan in 2019, a year-on-year increase of 5.3%; net profit attributable to shareholders of the listed company was 1.85 billion yuan, a year-on-year increase of 30.2%, a record high in nearly a decade. On the other hand, the epidemic situation in Beijing is now well controlled, and the catering and tourism industries are fully recovering. Data shows that China's beer production increased by 7.5% and 14.6% year-on-year in April and May, respectively. Beer sales recovered in April-May, and in June, benefiting from the 'street stall economy' accelerating sales, beer sales grew strongly. Additionally, with the arrival of summer, beer has entered its peak season, which will undoubtedly accelerate performance recovery. Beer marketing expert Fang Gang stated that the beer peak season has arrived, and the performance empowerment effect of the second quarter is showing. Overall in the first half, performance may decline by about 10%, but in the second half, the beer industry will continue to grow. He also predicted that the beer industry will show a slight decline this year, but the decline rate will be in single digits, with little overall impact on the industry. Therefore, many industry insiders believe that with short-term recovery opportunities and good momentum for future structural upgrades, Tsingtao Brewery and Zhujiang Brewery will benefit first.
-03- Proper Crisis Response, Precise Tactics Win the Market Regarding the 100 billion market value, Fang Gang said that the rise in Tsingtao Brewery's stock price was expected. In 2020, affected by the COVID-19 pandemic, alcohol consumption once stalled, and many liquor companies saw revenue drop sharply in February. In contrast, Tsingtao Brewery, through offline contactless delivery, million-community promotions, million-community group buying; online e-commerce, WeChat mall distributors, live streaming; and ten projects including smart manufacturing, digitalization, industrial internet, and smart logistics, formed its own unique approach to resuming work and production, successfully avoiding excessive losses and impacts during the pandemic, and providing a foundation for rapid recovery in the post-pandemic period.
The online e-commerce layout can be seen from the 618 results: Tsingtao Brewery simultaneously topped the beer category rankings on multiple platforms such as Tmall, JD.com, and Suning. Tsingtao Brewery has taken only a few years to be at the forefront of the industry in this regard.
In addition, in June, Tsingtao Brewery officially reached a strategic cooperation with Meituan-Dianping, further bundling catering and new retail flash purchase businesses, undoubtedly broadening consumption scenarios and improving brand channel penetration. Furthermore, on March 23, Tsingtao Brewery issued a stock incentive plan, planning to grant a total of 13.5 million restricted shares to no more than 660 incentive recipients, including supervisors, senior executives, middle-level managers, and core backbone personnel. The plan was successfully implemented at the end of June. Fang Gang said: 'During the pandemic, Tsingtao Brewery reacted quickly and flexibly, and its market tactics were appropriate. Especially the share reform in March improved the combat effectiveness of middle and senior employees, and also enhanced market confidence in the company's steady development, stimulating the demand for market value increase.' Prior to this, Tsingtao Brewery also made moves to close inefficient factories, accelerate the transformation of old and new growth drivers (Zaozhuang 1 million kiloliter new project), and build a modern smart industrial park (Pingdu Industrial Park expansion project). These infrastructure changes drove Tsingtao Brewery to optimize resource utilization and achieve efficient and high-quality development. Thanks to the continuous optimization of product structure and supply chain, Tsingtao Brewery's performance in various regions has also significantly improved.
With a series of effective measures, today, reflected in performance, Tsingtao Brewery's profit and other aspects are performing well. In essence, the reporter believes it mainly lies in Tsingtao Brewery's three advantages: First, Tsingtao Brewery's century-old brand accumulation, strong product strength, effectively supports the construction and enrichment of its high-end product matrix. Tsingtao Classic 1903, Tsingtao Pure Draft, August, Whole Wheat White Beer, Pilsner, and other high-end products are blooming across the board, giving consumers more choices. Sinolink Securities analysis believes that the high-end products launched by Tsingtao Brewery in recent years have high market acceptance and rapidly increasing sales scale. Compared with the industry, Tsingtao Brewery is the domestic beer brand with the most high-end categories and the most comprehensive enterprise. Second, Tsingtao Brewery's market strategy is clear and precise, demonstrating its pragmatic and enterprising style. When building e-commerce channels, as a late entrant, it ensures profitability through self-operation, high-level layout, leveraging hot spots, precise promotions, and quickly forming scale effects to suppress competitors. During the pandemic, it responded flexibly, with clear strategic thinking, market strategies tailored to local conditions, continuous advancement of high-end layout, and clear direction for market-oriented reform. Third, equity incentives and factory optimization have significantly improved its management efficiency and continuously optimized profitability. Decisively closing inefficient factories and building modern production projects will long-term optimize capacity, reduce employee compensation, amortization and depreciation expenses as a proportion of revenue. The breadth and intensity of equity incentives are unmatched in the beer industry, greatly enhancing internal momentum. Over the past few years, Tsingtao Brewery has taken multiple measures to promote high-quality development. As an industry leader, it has demonstrated observation, adaptability, innovation, and risk resistance, bringing strong confidence to the capital market. The company's healthy, stable, and sustained growth is ultimately reflected in the capital market, achieving the 100 billion Tsingtao Brewery.