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Introduction:On the one hand, the national time window is closing, and on the other hand, there is pressure from the ceiling of high-end upgrades.Pearl River BeerIt is not easy to return to the first-tier beer market.

Li Ping | Author Lishi Business Review | Produced by

1

Interim results exceeded expectations

A mid-year performance forecast that far exceeded market expectations has brought Zhujiang Beer, which had been silent for a long time, back into the sight of secondary market investors.

On the evening of July 10, Zhujiang Beer released its performance forecast for the first half of 2024. The announcement showed that in the first half of 2024, Zhujiang Beer expects to achieve a net profit attributable to shareholders of listed companies of approximately 476 million yuan to 531 million yuan, a year-on-year increase of 30% to 45%; non-net profit is expected to be 436 million yuan to 487 million yuan, a year-on-year increase of 30% to 45%.

According to the previous quarterly report, from January to March 2024, Zhujiang Beer achieved a net profit of 121 million yuan and a non-net profit of 104 million yuan. Based on this calculation, Zhujiang Beer's net profit attributable to the parent company in the second quarter was about 355 million yuan to 410 million yuan, a year-on-year increase of 27% to 47%; the net profit attributable to the parent company after deducting non-net profits was about 332 million yuan to 382 million yuan, a year-on-year increase of 26% to 45%, which greatly exceeded market expectations.

At a time when the consumer sector is generally viewed with pessimism, Zhujiang Beer's substantial growth in its semi-annual report has become a rare bright spot. The day after the financial report was released, Zhujiang Beer surged 8%, hitting the daily limit at one point during the session, and led the entire beer sector to surge 5%.

Since the second half of 2023, domestic beer production and sales have continued to be sluggish against the backdrop of sluggish consumption. In 2024, due to factors such as the slow recovery of the catering industry and more rainy weather, domestic beer sales have not improved. According to data from the National Bureau of Statistics, in June 2024, the national beer production was 41.1 million kiloliters, a year-on-year decrease of 1.7%. This is also the fourth consecutive month that the beer production of industrial enterprises above a certain scale has declined year-on-year.

Against this backdrop, leading beer companies generally faced sales pressure in the first quarter.Budweiser Asia Pacific、Tsing Tao beerRevenues declined year-on-year.Chongqing Beer、Yanjing BeerRevenue also grew by only single digits.

In terms of horizontal comparison, Zhujiang Beer's performance in the first quarter is quite remarkable. According to the previous quarterly report data, from January to March 2024, Zhujiang Beer's operating income and net profit attributable to shareholders increased by 7.05% and 39.37% year-on-year respectively, and the growth rate of profits was much higher than that of revenue.

In this regard, Zhujiang Beer stated in the performance communication meeting that although the Chinese beer industry is highly competitive, there is room for the structural upgrade of beer consumption. The company will follow the development trend of high-end beer and promote the upgrading of the company's products. In the first quarter of 2024, the company's product structure continued to be optimized, and the sales volume of high-end beer products increased by 15.05% year-on-year.

According to product price, Zhujiang Beer's main business is divided into three parts: high-end, mid-range and popular products. Among them, high-end products mainly include pure draft beer and Snow Castle beer, mid-range products are mainly zero-alcohol beer, and popular products are mainly traditional beers such as wheat beer.

The annual report shows that in 2023, Zhujiang Beer Company achieved beer sales of 5.149 billion yuan, of which high-end, mid-range and popular products achieved operating income of 3.426 billion yuan, 1.399 billion yuan and 324 million yuan, respectively, with year-on-year growth rates of 15.12%, -0.59% and 5.32%, respectively. High-end products grew the fastest.

In addition, the sales of Zhujiang Beer are concentrated in the South China region. As the leader of my country's economy, Guangdong has better consumption capacity and product structure than the rest of the country, which also gives Zhujiang Beer a relative advantage in upgrading to high-end products.

According to the annual report, in 2023, Zhujiang Beer achieved a total revenue of 5.378 billion yuan, of which the revenue from South China was 5.110 billion yuan, a year-on-year increase of 10.54%, accounting for 95% of the revenue; the revenue from other regions was only 268 million yuan, a year-on-year decrease of 12.24%, accounting for less than 5% of the revenue.

It is not difficult to see that Zhujiang Beer's sales are highly concentrated in its base in South China, which also leads to its sales scale being significantly lower than that of its competitors.China Resources Beer, Tsingtao Brewery, Yanjing Beer and Chongqing Brewery had revenues of 49.359 billion yuan, 38.93 billion yuan, 33.94 billion yuan, 14.8 billion yuan and 14.2 billion yuan respectively. The combined share of the top five has exceeded 90%.

According to sales ranking, Zhujiang Beer's beer sales in 2023 (5.149 billion yuan) would rank sixth in the industry, but it is only equivalent to one-third of Yanjing Beer, the fifth in the industry, and has basically lost the qualification to compete in the "top five".

In fact, before the announcement of the interim results, Zhujiang Beer had been silent in the secondary market for a long time. As of the close of the day of the results announcement, the total market value of Zhujiang Beer was only 16 billion yuan, almost the same as the closing price of the company's listing month (August 2010). This means that Zhujiang Beer's stock price has not risen for 14 years, and the reason behind this is the company's helplessness in falling from the "King of South China" to a second-tier local beer brand.

2

There is Tsingtao Beer in the north and Pearl River in the south

For those who are familiar with the development history of China's beer industry, Zhujiang Beer is an existence that cannot be ignored.

According to data, Zhujiang Beer was first established in 1985 and was formerly known as Guangzhou Zhujiang Brewery. In 1997, Zhujiang Beer introduced low-temperature membrane filtration technology from Germany and took the lead in developing and producing the first bottle of pure draft beer in China, opening the era of pure draft beer consumption in China. It is said that for a period of time around 2000, there were empty green bottles of Zhujiang Beer in the streets and alleys of Guangdong Province, and there was almost no room for beer from outside the province. From Guangdong to Shanghai, drinking "Zhujiang Pure Draft" was considered a fashion.

Since then, the saying "There is Qingdao in the north and Pearl River in the south" has spread in the beer industry, and Pearl River Beer has also established its status as the "King of South China".

However, as China officially joined the WTO, foreign beer giants began to accelerate their domestic expansion. On the other hand, domestic brands such as Tsingtao and Snow accelerated their expansion by building factories and acquiring companies in the south. Data shows that from 1996 to 2001 alone, Tsingtao Beer acquired 47 beer companies.

In addition to internal and external attacks, Zhujiang Beer gradually lost its home market. In order to cope with this challenge, Zhujiang Beer put forward the eight-character policy of "consolidating in the south, going north, advancing west, and expanding east", and put the national layout on the agenda. However, facing foreign brands with obviously stronger capital and brand strength than itself, Zhujiang Beer's national layout was not smooth and ended in a hasty manner.

On the other hand, in order to consolidate its home market, which was being eroded, Zhujiang Beer took the initiative to sell 24% of its shares to Belgian beer giant Interbrew, and Zhujiang Beer was transformed into a joint venture brand. However, the successful cooperation with Interbrew did not realize Zhujiang Beer's desire to integrate the Greater South China market, and even gradually lost its home base in Guangdong. Data shows that as early as 2007, Zhujiang Beer's revenue reached 3.733 billion yuan. Three years later, in 2010, Zhujiang Beer's operating income was only 3.053 billion yuan.

Some analysts believe that as a typical local state-owned enterprise, Zhujiang Beer is lacking in mechanism, management, decision-making and other aspects, which also makes it difficult for the second largest shareholder Interbrew to display its capabilities. On the other hand, Interbrew had already acquired 16 beer companies in China before cooperating with Zhujiang Beer, and its own energy was relatively limited.

Fortunately, the decline in sales did not hinder Zhujiang Beer's listing. In August 2010, Zhujiang Beer was successfully listed on the Shenzhen Stock Exchange and raised 406 million yuan.

After going public, Zhujiang Beer once again proposed the slogan of nationalization, and successively built factories in Guangxi, Hunan, etc. Data shows that from 2010 to 2012, Zhujiang Beer's sales revenue in other regions (markets outside South China) increased from 427 million yuan to 631 million yuan, and drove the company's total revenue to increase from 3.053 billion yuan to 3.475 billion yuan.

However, the establishment of factories outside the province only brought an increase in revenue scale to Zhujiang Beer, but its profitability was not optimistic. From 2010 to 2012, Zhujiang Beer's net profit fell from 91.3099 million yuan to 50.9612 million yuan, and its non-net profit fell from 87.8635 million yuan to -2.8425 million yuan. In other words, after three years of aggressive expansion, Zhujiang Beer fell into a loss situation.

Since 2013, domestic beer sales have peaked and are falling, and Zhujiang Beer's sales in non-South China regions have also begun to decline sharply. By 2017, Zhujiang Beer's sales revenue in other regions was only 183 million yuan, less than half of the same period in 2010. Among them, factories in other provinces such as Hebei and Hunan have fallen into a loss-making state. At this point, Zhujiang Beer has completely become a second-tier local brand, with little presence in markets outside of Guangdong.

3

What are the prospects for the second round of mixed-ownership reform?

Since its listing, Zhujiang Beer has been investing in expanding production, and its fixed assets have been rising. As of the end of 2016, the balance of Zhujiang Beer's fixed assets reached 3.551 billion yuan, an increase of nearly 1 billion yuan from the beginning of its listing. On the other hand, due to the serious losses of some factories, Zhujiang Beer's cash assets have been continuously consumed, and its asset-liability ratio has continued to rise. As of the end of 2016, Zhujiang Beer's asset-liability ratio reached 45.95%, and its monetary funds were only 132 million yuan.

In this context, Zhujiang Beer proposed the slogan of "secondary mixed reform" and followed the example of Tsingtao Beer in introducingFosun InternationalIn March 2017, Zhujiang Beer introduced several specific strategic investors such as Guangzhou State-owned Assets Development Holdings Co., Ltd. and Interbrew International through a private placement, and raised 4.312 billion yuan. According to the company's plan, the raised funds will be used for eight projects, including the construction and upgrading of a modern marketing network, the construction of an O2O sales channel, the expansion and relocation of beer production capacity, and the construction of a craft beer production line and experience store.

However, judging from the project progress, the above eight fundraising projects of Zhujiang Beer have not progressed smoothly. As of the end of 2023, Zhujiang Beer has invested a total of 2.221 billion yuan in the projects committed to raising funds, with an overall progress of about 50%. Among them, only the investment progress of the second phase of the Nansha Zhujiang Beer project with an annual output of 1 million kl beer has reached 99%, while the cumulative progress of the Zhanjiang Zhuhai project, the craft beer production line and the experience store construction project is almost zero.

It is worth mentioning that Zhujiang Beer's "Modernized Marketing Network Construction and Upgrading Project" originally planned to invest 800 million yuan in raised funds, but later significantly reduced the amount of raised funds to be used to 228 million yuan. As of the end of 2023, the project had progressed to 82.98%, and the construction of the marketing network had not been completed in 7 years.

In fact, as the beer industry enters the red ocean market, Zhujiang Beer has little chance of achieving national expansion. Data shows that from 2017 to 2022, Zhujiang Beer's sales revenue from other regions (non-South China) increased from 201 million yuan to 305 million yuan, which is still lower than the same period in 2010. In 2023, Zhujiang Beer's sales revenue in non-South China regions fell to 268 million yuan, and its revenue share fell below 5%.

Faced with the dilemma of ineffective national layout, Zhujiang Beer chose to increase investment in its Guangdong base and put high-end transformation on the agenda. In 2019, Zhujiang Beer launched the high-end product 97 Pure Draft, which effectively drove the company's pure draft sales growth and structural upgrade. From 2020 to 2022, the compound growth rate of Zhujiang Pure Draft series product sales reached 11%, and the revenue growth rate of high-end products was significantly higher than the company's overall revenue growth rate.

With the steady increase in sales of high-end beer, Zhujiang Beer's revenue has achieved steady growth, and its net profit has also increased significantly. Data shows that from 2017 to 2023, Zhujiang Beer's operating income will be 3.349 billion yuan, 3.509 billion yuan, 3.76 billion yuan, 4.04 billion yuan, 4.38 billion yuan, and 4.928 billion yuan, respectively, and its net profit will be 185 million yuan, 366 million yuan, 497 million yuan, 569 million yuan, 611 million yuan, and 598 million yuan, respectively.

It is not difficult to see that after the mixed ownership reform, the growth rate of Zhujiang Beer's net profit was significantly higher than its revenue growth rate. This was due to the low base effect on the one hand, and the substantial growth in interest income on the other.

In fact, due to the repeated postponement and extension of the fundraising projects, the "saved" fundraising funds of Zhujiang Beer contributed considerable interest income to the company. From 2018 to 2023, Zhujiang Beer's interest income remained at 220 million yuan, contributing more than 30% to the company's net profit.

It is not difficult to see that the growth of Zhujiang Beer's performance in the past few years has a certain degree of inflated components. In the future, as the fundraising and investment projects are promoted, the company's interest income will most likely enter a downward mode. At that time, Zhujiang Beer will inevitably enter a "financial makeup removal" mode, which is also the deep-seated reason why the company's stock price has not risen for ten years.

In addition, in the context of the current weakening of beer consumption, the logic of beer companies in the past to "exchange price for volume" through high-end products is facing new challenges, as can be seen from the fact that both the revenue and sales volume of Budweiser Asia Pacific China are under pressure. From the perspective of revenue structure, the proportion of high-end beer revenue of Zhujiang Beer has reached 63.70%, and there is limited room for improvement in the future.

Obviously, with the closing of the national window and the pressure of upgrading to high-end products, it is not easy for Zhujiang Beer to return to the first-tier beer camp. For investors, this is not a doubt that can be completely dispelled by a mid-year performance report. How can Zhujiang Beer, which has been unable to leave its base in South China, avoid being marginalized?