Premiumization And Zero Sugar Products In China Will Attract Younger Consumers

Key Takeaways

• Geographic and channel expansion in China, focusing on premiumization and in-home consumption, aims to enhance market share, revenue, and net margins.
  
• Strategies like Zero Sugar products and NBA partnerships target younger demographics, potentially boosting sales volumes and revenue in China and South Korea.
  
• Weak consumer environment and strategic uncertainties could impact Budweiser Brewing Company APAC’s revenues, margins, and execution of market strategies.

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.

• Budweiser Brewing Company APAC is focusing on geographic and channel expansion in China, increasing its city distribution for its brands, which is expected to drive revenue growth.
  
• The company plans to prioritize market share growth in China through premiumization and specific channel strategies, such as in-home consumption, which could enhance revenue and net margins.
  
• The emphasis on innovative products like Zero Sugar options and partnerships with popular brands like the NBA in China suggests a strategy to capture younger demographics, potentially increasing sales volumes and revenue.
  
• In South Korea, Budweiser APAC is expected to continue premiumization, capitalizing on healthier products and leveraging strong brand portfolios, likely contributing to margin expansion and revenue growth.
  
• India's strategy includes the integration of digital platforms like SAP for operational efficiencies and premium brand expansion, which could drive future earnings and improve profitability levels.

Budweiser Brewing Company APAC Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Budweiser Brewing Company APAC's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.6% today to 13.8% in 3 years time.
• Analysts expect earnings to reach $979.0 million (and earnings per share of $0.07) by about March 2028, up from $726.0 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 $845 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.7x on those 2028 earnings, up from 22.8x today. This future PE is greater than the current PE for the HK Beverage industry at 16.7x.
• 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

• The softness in China due to a weak consumer environment and negative channel mix could impact Budweiser Brewing Company APAC's future revenues and profits.
  
• Budweiser Brewing Company APAC's management change might create strategic uncertainties that could affect the company's ability to execute its market strategies effectively, impacting earnings.
  
• The competitive market dynamics and complex regulatory environment in India, despite strong growth projections, present risks that could impact revenue continuity.
  
• The Board has recommended a dividend increase, which may strain available capital for reinvestment in growth opportunities, potentially affecting future earnings.
  
• The focus on gaining market share as a top priority, particularly in China, could require significant marketing and sales expenditure, possibly squeezing net margins in the short term.

Valuation

• The analysts have a consensus price target of HK$11.292 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$18.45, and the most bearish reporting a price target of just HK$8.49.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $7.1 billion, earnings will come to $979.0 million, and it would be trading on a PE ratio of 23.7x, assuming you use a discount rate of 6.5%.
• Given the current share price of HK$9.74, the analyst price target of HK$11.29 is 13.7% 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.