Tsingtao Brewery, Agricultural Bank of China, Inner Mongolia Yili Industrial Group

🍺 Tsingtao Brewery (168 HK) – Affected by Consumption Downgrade

Recommendation: HOLD
Target Price: Not specified
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: Tsingtao Brewery has faced challenges in 2024, with a noticeable consumption downgrade affecting beer sales. Despite being one of China’s leading breweries, the company has seen a decrease in revenue growth, which has impacted its short-term performance.

• Consumption Downgrade: The ongoing economic environment has led to a shift in consumer behavior, with a preference for lower-priced alternatives. This trend has directly impacted Tsingtao Brewery’s sales, particularly in its premium product lines.
• Revenue and Profit Impact: As a result of the consumption downgrade, Tsingtao’s revenue growth has slowed, and its profit margins have been compressed. The company’s strategy to focus on premiumization has been challenged by the current market conditions.

Valuation and Financials:
The recommendation to hold reflects the current market conditions and the challenges faced by Tsingtao Brewery. The company’s ability to navigate this period of consumption downgrade will be critical for its long-term outlook.

Share Price Catalysts:

• Recovery in consumer spending and a shift back to premium products.
• Successful introduction of new product lines catering to current market demands.

🏦 Agricultural Bank of China (1288 HK) – Leading Profit Growth Among Big Four Banks

Recommendation: ADD
Target Price: Not specified
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: Agricultural Bank of China (ABC) stands out among China’s big four banks, delivering the strongest net profit growth in the first half of 2024. The bank’s strategic focus on rural banking and agricultural finance has positioned it well to benefit from government policies aimed at supporting rural development.

• Strong Financial Performance: ABC reported the highest net profit growth among its peers, supported by an increase in net interest income and effective cost control measures. The bank’s focus on rural finance has proven to be a resilient growth area.
• Policy Support: The Chinese government’s emphasis on rural revitalization continues to provide tailwinds for ABC. The bank’s extensive network and expertise in rural banking position it to capture growth opportunities in this segment.

Valuation and Financials:
ABC’s valuation remains attractive given its strong financial performance and positive outlook in rural banking. The bank’s ability to maintain its growth trajectory amid a challenging economic environment underscores its investment appeal.

Share Price Catalysts:

• Continued government support for rural revitalization policies.
• Expansion of rural banking services and product offerings.

🥛 Inner Mongolia Yili Industrial Group (600887 CH) – Positioned for Recovery in 2H24

Recommendation: BUY
Target Price: Not specified
Stop Loss: Not specified
Date of Recommendation: 2nd September 2024
Broker: CGS-CIMB Securities

Investment Thesis: Inner Mongolia Yili Industrial Group is expected to see a significant recovery in the second half of 2024, driven by improvements in sales and operational efficiencies. As one of China’s largest dairy producers, Yili is well-positioned to benefit from the increasing demand for dairy products and the stabilization of raw material costs.

• Sales Improvement: Yili is poised to benefit from a recovery in sales in 2H24, particularly as channel inventories normalize and consumer demand picks up. The company’s strong brand presence and extensive distribution network will support this recovery.
• Operational Efficiency: Yili has been focusing on improving its operational efficiencies, which should help in enhancing profit margins. The stabilization of raw material costs, particularly milk prices, is expected to further support margin expansion.

Valuation and Financials:
Yili’s strong market position and expected recovery in 2H24 make it an attractive investment opportunity. The company’s focus on innovation and operational excellence provides a solid foundation for future growth.

Share Price Catalysts:

• Recovery in consumer demand and normalization of channel inventories.
• Continued focus on innovation and product development.

  Thank you