Orient Securities has maintained its "Buy" rating on CHINA RES BEER (00291). The company's core beer business continues its steady premiumization strategy, with key high-end products like Heineken sustaining strong growth. Benefits from digitalization initiatives in cost reduction and efficiency improvements are ongoing, supporting a steady enhancement in core profitability. The brokerage anticipates a one-time goodwill impairment charge for the baijiu operations in 2025 and has consequently lowered its profit forecast for that year. It expects the baijiu business to bottom out in 2026, with a recovery in consumer demand emerging in 2027. No significant goodwill impairments are projected for 2026 and 2027, and operational scale effects are expected to gradually materialize, leading Orient Securities to raise its profit forecasts for 2026-2027. Estimated EPS for 2025-2027 are now RMB 1.04, 1.83, and 1.90 respectively (previously RMB 1.62, 1.75, and 1.86). Based on the adjusted average 2026 P/E ratio of industry peers and applying a 17x multiple to the 2026 EPS, the firm has set a target price of HK$35.35 (RMB/HKD = 0.88).
The primary views from Orient Securities are outlined below, following the company's release of its 2025 results. Revenue for 2025 declined by 1.7% year-on-year to RMB 379.9 billion, while net profit attributable to shareholders fell 28.9% to RMB 33.7 billion. Excluding items such as goodwill impairment, factory closures, and land sales, adjusted EBITDA increased by 9.9% to RMB 98.79 billion, and adjusted net profit attributable to shareholders rose 19.6% to RMB 57.24 billion.
Beer product mix optimization is driving sustained profit improvement. In 2025, beer sales volume increased 1.4% to 11.03 million tons, while revenue per ton and cost per ton decreased by 1.4% and 3.7% to RMB 3,308 and RMB 1,903 per ton, respectively. The gross margin for the beer business improved by 1.4 percentage points to 42.5%, primarily due to lower raw material costs. Sales volume for premium and above, as well as sub-premium and above segments, grew by 10% and mid-to-high single digits, respectively. Heineken, Lao Xue, and Red Baron saw growth of nearly 20%, approximately 60%, and over 100%, indicating continued product structure enhancement. The adjusted EBITDA margin for the beer business increased by 3.9 percentage points to 26.3%, with adjusted beer EBITDA rising 17.4% to RMB 9.61 billion, reflecting ongoing profitability gains.
The goodwill impairment for the baijiu business has been realized, impacting profits temporarily. Affected by a deep industry adjustment, revenue from the baijiu segment declined 30.4% in 2025, with a goodwill impairment charge of RMB 2.88 billion recorded. The gross margin and adjusted EBITDA margin for the baijiu business fell by 11.5 and 22.0 percentage points to 57.0% and 17.6%, respectively. The company is actively developing its baijiu operations as a second growth engine, implementing seven strategic measures to ensure long-term, healthy development.
Efforts to advance the "Three Refinements" strategy and leverage digitalization for cost reduction and efficiency gains are progressing. The sales and administrative expense ratios decreased by 1.4 and 0.2 percentage points to 20.3% and 8.3% in 2025, respectively. Organizational and personnel optimizations following the headquarters relocation contributed significantly to the lower administrative expense ratio.
Risks include fluctuations in raw material costs, slower-than-expected recovery in the餐饮 (catering) channel, and changes in macroeconomic policies.
Comments