Expansion In India And South Korea Will Strengthen Premium Brand Position

Key Takeaways

• Strong brand portfolios and premiumization contribute to revenue growth and market share gains in South Korea, India, and China.
  
• Digital tool implementation aims to enhance operational efficiency and increase net margins in key APAC markets.
  
• Continued weakness in China and intense competition threaten Budweiser APAC's revenue and market share, with premiumization challenges and cost pressures impacting future growth.

Catalysts

An investment holding company, produces, imports, markets, distributes, and sells beer and other non-beer beverages primarily in China, South Korea, India, Vietnam, and the other Asia Pacific regions.

• Continued commercial momentum in South Korea, including market share gains and revenue per hectoliter growth driven by strong brand portfolios, is expected to positively impact revenue and net margins.
  
• Expansion in India with double-digit net revenue growth within the Premium and Super Premium portfolio suggests potential for increased earnings as the market outpaces industry growth.
  
• Ongoing geographic and in-home channel expansion in China, despite current challenges, aims to enhance long-term revenue growth and market penetration, particularly through premiumization.
  
• Implementation of digital tools like BEES for efficient trade execution and in-home channel expansion in markets such as South Korea and China may lead to improved operational efficiencies and net margins.
  
• Recent price increases in South Korea's premium brands and focus on premiumization indicate expectations for improved revenue per hectoliter and potential margin expansion.

Budweiser Brewing Company APAC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Budweiser Brewing Company APAC's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 15.0% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $0.09) by about February 2028, up from $719.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.3 billion in earnings, and the most bearish expecting $791 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.1x on those 2028 earnings, up from 18.7x today. This future PE is greater than the current PE for the HK Beverage industry at 15.6x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.54%, as per the Simply Wall St company report.

Budweiser Brewing Company APAC Future Earnings Per Share Growth

Risks

• There is continued industry weakness in China, especially in on-premise channels, affecting Budweiser APAC's revenue and market share, which could lead to further revenue decline.
  
• The company has faced substantial volume decreases, with China experiencing a 14.2% drop in the third quarter, suggesting ongoing challenges in capturing consumer demand, impacting both revenue and net margins.
  
• Intense competition from other brands like Heineken in China, which shows different market dynamics, could further erode Budweiser's market share, affecting future earnings potential.
  
• The slow recovery in consumer confidence and preference shifts in key markets like China may limit the expected premiumization opportunities, potentially reducing projected revenue growth and earnings.
  
• Cost pressures and adverse channel mix, such as negative performance in the more premium on-premise segment in China, might restrict improvements in net margins and normalized EBITDA growth.

Valuation

• The analysts have a consensus price target of HK$11.048 for Budweiser Brewing Company APAC based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$18.48, and the most bearish reporting a price target of just HK$7.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.6 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 20.1x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of HK$7.92, the analyst price target of HK$11.05 is 28.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.