Broker: UOB Kay Hian
Date of Report: Wednesday, 27 August 2025

Tsingtao Brewery Delivers Robust Margin Expansion in 2Q25: Strong Earnings Growth and Improved Product Mix Signal Positive Outlook

Executive Summary: Margin Expansion Powers Earnings Outperformance

Tsingtao Brewery (168 HK), a leading player in China’s beer industry, reported solid results for the second quarter of 2025. Net profit jumped 7% year-over-year, outpacing a modest 1% growth in revenue. This strong earnings momentum was primarily driven by gross margin expansion, resulting from easing raw material costs and a steadily improving product mix favoring mid- to high-end products. The company’s strategic focus on premiumization and cost control continues to pay dividends, prompting UOB Kay Hian to maintain a BUY rating and lift the target price by 5% to HK\$69.90.

Company Profile: Tsingtao Brewery at a Glance

– **Sector:** Consumer Staples – **Key Brands:** Tsingtao Beer, Laoshan Beer, Centennial Journey – **Market Cap:** HK\$87.60 billion (~US\$11.23 billion) – **Shares Outstanding:** 655.1 million – **Major Shareholder:** TsingTao Brewery Group (57.13%) – **Stock Ticker:** 168 HK – **52-Week Range:** HK\$40.00 – HK\$67.00

2Q25 & 1H25 Financial Performance: Net Profit Outpaces Revenue

Tsingtao Brewery’s second quarter and first-half results highlight a resilient business model that is successfully navigating headwinds and capturing value from premiumization.

Key Growth Drivers: Margin Expansion & Premiumization

• Gross Margin Expansion: 2Q25 gross margin surged to 45.8%, up 3.0 percentage points year-over-year — a result of falling raw material costs and an improved sales mix favoring higher-margin products.
• Product Mix Improvement: The mid- to high-end segment contributed 40% of total sales volume in 2Q25, up from 38% a year ago. Sales volume of mid- to high-end products increased by 5% year-over-year.
• Stable Pricing: ASP (Average Selling Price) in 2Q25 edged up by 0.3% year-over-year, demonstrating pricing power despite competitive market conditions.
• Cost Discipline: Cost of goods sold per kiloliter fell by 5% year-over-year in 2Q25 to Rmb2,202, supporting gross margin gains.

Segmental Revenue and Volume Trends

Financial Forecasts and Valuation Multiples

UOB Kay Hian has raised its 2025 and 2026 earnings forecasts by 4% each, reflecting higher gross margin assumptions due to lower raw material costs. Revenue estimates remain unchanged.

Balance Sheet & Cash Flow: Pristine Financial Health

– **Net Cash Position:** The company maintains a strong net cash position, with net cash to equity at -61.9% in 2024 and forecasted to remain at approximately -61.5% through 2027. – **Operating Cash Flow:** Projected to steadily rise, reaching Rmb 6.4 billion by 2027. – **Capex:** Controlled and consistent, with annual allocation of ~Rmb 2 billion for growth and maintenance.

Outlook and Valuation: Upgraded Target Price, Attractive Multiples

– **Target Price Raised:** UOB Kay Hian has raised the target price to HK\$69.90, reflecting a 5% upside revision. – **Valuation:** Tsingtao currently trades at 9.8x 2025 EV/EBITDA and 9.0x 2026 EV/EBITDA — attractive for a leading consumer staples brand with premiumization tailwinds. – **Dividend Yield:** Yield is expected to rise from 4.7% in 2024 to 6.1% by 2027, supporting the investment case for income-focused investors.

Investment Thesis: Margin Expansion, Premiumization, and Solid Execution

Tsingtao Brewery’s 2Q25 results underscore the effectiveness of its strategy:

• Continued margin expansion on easing cost pressures
• Steady improvement in the premium segment mix
• Solid execution in cost and expense management
• Attractive risk-reward profile with robust dividend yield and premium brand strength

Risks to the investment case include potential volatility in raw material prices and competitive pricing pressure, but Tsingtao’s execution and market positioning provide confidence in continued outperformance.

Conclusion: Tsingtao Brewery Remains a Top Pick in China’s Consumer Staples

Tsingtao Brewery stands out for its consistent earnings growth, expanding margins, and strong balance sheet. With an upgraded target price, a compelling valuation, and a growing dividend yield, the stock remains a BUY for investors seeking exposure to China’s resilient consumer sector and the enduring appeal of leading beverage brands.

Key Financial Highlights Table