Budweiser Brewing - In-home gains continue
- 1H25 results slightly better than expectations with stronger-than-expected ASP recovery
- Ongoing brand mix improvement in China in-home channels and sequential volume improvement in 2H25 on a lower baseExpect volume to resume positive growth in South Korea in 2H25
- Lift FY25/FY26F earnings slightly by 2% to reflect better margin outlook. Maintain BUY on undemanding valuation and decent dividend yield of >5%; TP revised to HKD9.60.
Sequential sales improvement in China. Despite continued softness in China’s consumer sentiment, Bud APAC saw a narrower volume decline in 2Q25, even amid unfavourable shifts in geographic and channel mix (from on-premise to in-home). The pressure on sales volume may continue given continued weakness in traditional Chinese restaurant channels, which was impacted by anti-extravagance mandates imposed on public officers by the Chinese Government. While the company’s channel inventory level is much lower than in 1H24 and also lower than that of the industry, we believe management would extend their channel inventory control measures beyond 3Q25, with potential normalisation towards the end of this year, with a much lower volume base in 4Q24. With a much lower volume base in 2H25, we expect sequential volume improvement and potentially a small rebound towards 4Q25.
Particularly in the Guangdong (GD) province, restaurant channels remain weak while Bud APAC has been over-indexed in on-premise channels in the past years. The fastest growing channels in GD are currently in-home, so the company is focusing on these and expanding drinking occasions to regain market share.
In the Anhui and Hubei provinces, Bud APAC’s pilot distribution partnership with Swire continued to drive in-home market share growth in 2Q25. The company is proactively pursuing partnerships in other regions to further drive channel expansion.
Room for brand-mix upgrade. ASP in China posted 1.1% growth in 2Q25 off a low base. This marks its first rebound after four quarters of decline, driven by brand mix upgrades within in-home and on-premise channels, respectively, in China, despite an unfavourable channel mix. The volume/revenue contribution of premium/super-premium brands in in-home channels has now surpassed that of restaurant channels. While we believe the overall ASP level of in-home channels is still lower than on-premise, the ongoing brand-mix improvement (including potential local brand innovations and the growth of Core++) should help in-home channels to gradually catch up. While a channel shift could continue to weigh on China’s ASP, incorporating the double-digit revenue/volume growth of premium/super-premium beers in India, we forecast a 1% ASP decline in APAC West for the full year.
Recovery in South Korea. In South Korea, the 2Q25 volume decline of 10% was mainly due to shipment phasing. Strong brands like Cass 0.0 and Cass Lemon Squeeze should continue to drive outperformance despite a lukewarm industry, enabling a return to slight y/y volume growth in 2H25. While the price hike of 2.9% effective April should continue benefit Bud APAC, management sees no structural barriers to long-term margin expansion, and will continue to implement price hikes (we believe at a low-single digit range) – which is the top growth driver for South Korea operations.
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