UOB Kay Hian
Date of Report: Wednesday, 27 August 2025
TSINGTAO BREWERY (168 HK) DELIVERS ROBUST MARGIN-LED PROFIT GROWTH IN 2Q25: AN IN-DEPTH ANALYSIS AND OUTLOOK
Overview: Tsingtao Brewery’s Solid 2Q25 Performance
Tsingtao Brewery, a leading name among China’s oldest and most prestigious breweries, has posted a resilient set of results for the second quarter of 2025. The company’s net profit saw a healthy year-on-year growth, largely driven by improved gross margins on the back of easing raw material costs and a slightly better sales mix.
Key Investment Highlights at a Glance
- Recommendation: BUY (Maintained)
- Target Price: HK\$69.90 (Raised by 5%)
- Current Share Price: HK\$51.40
- Upside Potential: +36.0%
- Market Cap: HK\$87,596.1m (US\$11,230.1m)
- Major Shareholder: TsingTao Brewery Group (57.13%)
- 52-Week High/Low: HK\$67.00 / HK\$40.00
- GICS Sector: Consumer Staples
2Q25 and 1H25 Financial Performance – Margin Gains Power Profit Growth
| Metric |
2Q25 |
1Q25 |
2Q24 |
YoY Change (%) |
1H25 |
1H24 |
YoY Change (%) |
| Total Revenue (Rmbm) |
10,046 |
10,446 |
9,918 |
1.3 |
20,491 |
20,068 |
2.1 |
| Gross Profit (Rmbm) |
4,605 |
4,349 |
4,244 |
8.5 |
8,954 |
8,349 |
7.2 |
| Gross Margin (%) |
45.8 |
41.6 |
42.8 |
+3.0ppt |
43.7 |
41.6 |
+2.1ppt |
| EBIT (Rmbm) |
2,584 |
2,057 |
2,308 |
11.9 |
4,641 |
4,139 |
12.1 |
| EBIT Margin (%) |
25.7 |
19.7 |
23.3 |
+2.4ppt |
22.7 |
20.6 |
+2.0ppt |
| Net Profit Attributable (Rmbm) |
2,194 |
1,710 |
2,044 |
7.3 |
3,904 |
3,642 |
7.2 |
| Net Profit Margin (%) |
21.8 |
16.4 |
20.6 |
+1.2ppt |
19.1 |
18.1 |
+0.9ppt |
| Core Net Profit (Rmbm) |
2,029 |
1,603 |
1,914 |
6.0 |
3,632 |
3,427 |
6.0 |
| Core Net Margin (%) |
20.2 |
15.3 |
19.3 |
+0.9ppt |
17.7 |
17.1 |
+0.6ppt |
| Sales Volume (m hl) |
24.7 |
22.6 |
24.5 |
1.0 |
47.3 |
46.3 |
2.2 |
| ASP (Rmb/kl) |
4,065 |
4,620 |
4,055 |
0.3 |
4,330 |
4,334 |
-0.1 |
| COGS (Rmb/kl) |
2,202 |
2,696 |
2,320 |
-5.1 |
2,438 |
2,531 |
-3.7 |
Segmental Revenue Performance: Premiumization Continues
| Segment |
2Q25 (m hl) |
1Q25 (m hl) |
2Q24 (m hl) |
YoY Change (%) |
1H25 (m hl) |
1H24 (m hl) |
YoY Change (%) |
| Total Shipment |
24.7 |
22.6 |
24.5 |
1.0 |
47.3 |
46.3 |
2.2 |
| Tsingtao Brand |
13.4 |
13.8 |
12.9 |
3.9 |
27.1 |
26.1 |
3.9 |
| Secondary Brand |
11.3 |
8.9 |
11.6 |
-2.2 |
20.2 |
20.2 |
0.0 |
| Mid to High-End |
9.8 |
10.1 |
9.4 |
4.8 |
19.9 |
19.0 |
5.1 |
| Others |
14.9 |
12.5 |
15.1 |
-1.3 |
27.4 |
27.3 |
0.2 |
Operational and Strategic Analysis: What Drove Tsingtao’s Results?
- Margin Expansion: Margin growth was the central theme. Gross margin in 2Q25 jumped 3.0ppt year-on-year to 45.8%, reflecting cost efficiencies and a more favorable sales mix.
- Product Mix: The share of mid- to high-end beer products rose to 40% of total sales by volume (from 38% a year ago), underscoring Tsingtao’s ongoing premiumization strategy.
- Pricing Power: Average selling price (ASP) nudged up 0.3% year-on-year in 2Q25, while cost of goods sold (COGS) per kilo-litre dropped by 5%, further boosting margins.
- Sales Volume: Total beer sales volume rose 1% year-on-year in 2Q25 and 2.2% for 1H25. The core Tsingtao brand grew 3.9% in 2Q25, while secondary brands dipped slightly.
- Expense Trends: Gross margin gains were partly offset by higher sales taxes (+0.2ppt yoy) and slightly increased administrative expenses (+0.2ppt yoy).
Financial Forecasts and Key Metrics: Looking Ahead
| Year to 31 Dec |
2024 |
2025F |
2026F |
2027F |
| Net Turnover (Rmbm) |
32,138 |
32,981 |
33,931 |
34,948 |
| EBITDA (Rmbm) |
5,729 |
6,376 |
6,851 |
7,315 |
| Operating Profit (Rmbm) |
4,488 |
5,101 |
5,522 |
5,932 |
| Net Profit (Rmbm) |
4,345 |
4,813 |
5,159 |
5,500 |
| EPS (Fen) |
319.1 |
353.5 |
378.9 |
403.9 |
| PE (x) |
14.8 |
13.3 |
12.4 |
11.7 |
| Dividend Yield (%) |
4.7 |
5.4 |
5.7 |
6.1 |
| Net Margin (%) |
13.5 |
14.6 |
15.2 |
15.7 |
| ROE (%) |
15.4 |
16.1 |
16.3 |
16.4 |
Balance Sheet and Cash Flow Highlights
Tsingtao Brewery boasts a robust balance sheet with zero debt, significant net cash, and steady growth in shareholders’ equity.
Net cash per share in FY25 is Rmb13.92.
Net debt to equity remains deeply negative, underscoring its strong liquidity position.
Dividend payouts continue to rise, supporting an attractive yield for investors.
Key Cash Flow Metrics
- Operating Cash Flow (2025F): Rmb5,428.5m
- Capital Expenditure (2025F): Rmb1,990m
- Dividend Payments (2025F): Rmb3,001.2m
- Ending Cash & Cash Equivalent (2025F): Rmb18,986.1m
Earnings Revision and Valuation
- 2025 and 2026 earnings forecasts have been raised by 4% each, reflecting enhanced gross margin assumptions due to lower input costs.
- Revenue forecasts remain unchanged, with profitability being the main driver for the upward revision.
- The target price is now set at HK\$69.90, representing a 36% upside from current levels.
- Tsingtao trades at 9.8x 2025 EV/EBITDA and 9.0x 2026 EV/EBITDA, offering compelling value for a premium consumer staples franchise.
Strategic and Market Positioning: Premiumization and Cost Efficiencies
- Premiumization: The migration of its sales mix toward mid- and high-end products is accelerating, accounting for 40% of sales in 2Q25, up from 38% in 2Q24.
- Cost Management: Significant reduction in per unit COGS (down 5% YoY in 2Q25) is a major tailwind, further enhancing margins.
- Resilient Brand Portfolio: The Tsingtao brand itself grew 3.9% YoY, whereas the secondary brand volumes contracted 2.2%, highlighting the brand’s strength at the premium end.
Conclusion: Investment Case Remains Strong
Tsingtao Brewery remains a core consumer staples holding with a clear premiumization path, robust balance sheet, and margin expansion story. Rising profitability, disciplined cost control, and a steadily improving sales mix underpin the investment thesis. With a 36% upside to the newly raised target price and a rising dividend yield, the stock offers attractive risk-reward for investors focused on China’s evolving beer market.
Disclosures and Analyst Certification
This report has been prepared and distributed by UOB Kay Hian, with analysts certifying the independence and accuracy of their views. Distribution restrictions and legal disclaimers apply based on jurisdiction, as outlined by UOB Kay Hian.
For more information and analysis, investors should consult their financial adviser regarding the suitability of this investment.
