The Company reported 7.2% YoY net profit growth on 2.1% YoY revenue growth in 1H25, both in-line. In 2Q25, sales volume growth was slightly slower QoQ while ASP stabilised. On a YoY basis, margin improvement accelerated in 2Q25 vs. 1Q25. Looking ahead, we think Tsingtao could maintain top- and bottom-line growth momentum for 2H25. Its current P/E valuation is not excessive, with decent risk-reward, and at the same time, investor sentiment towards the alcohol industry in China is likely to improve. Upgrade to BUY for both Tsingtao-H and Tsingtao-A.

Key Factors for Rating

1H25 results review. Tsingtao reported total revenue of RMB20.5bn (up 2.1% YoY) in 1H25, in-line with our expectation. Specifically, beer sales volume grew 2.2% YoY to 4.73m KL, while ASP slightly fell 0.3% YoY to RMB4,272 per KL. By brand, sales volume of Tsingtao and secondary brands (mainly Laoshan) came in at 2.71m KL (+3.9% YoY) and 2.02m KL (-0.0% YoY), respectively, in 1H25. Sub-premium segment & above accounted for 42% of total sales volume (1H24: 41%), implying a steady trend of mix upgrade. Similar to its peers, Tsingtao also saw substantial growth in its online & instant retail channels, backed by stronger demand in off-trade new consumption areas. In 1H25, overall GPM rose 2.0ppts YoY to 36.9%, on cost tailwinds & production efficiency gain. Shareholders’ profit grew 7.2% YoY to RMB3.904bn (up 7.2% YoY), in-line with our expectation.

2Q25 highlights. In 2Q25, Tsingtao’s revenue increased 1.3% YoY, with volume up 1.0% YoY and ASP up 0.3% YoY. Volume of sub-premium segment & above went up 4.8% YoY, sustaining solid sales momentum from 1Q. Profitability wise, YoY improvement of NPM was 1.2ppts in 2Q vs. 0.7ppt in 1Q.

Key Risks for Rating

Risks: 1) slower-than-expected on-premise channel recovery; 2) fiercer industry competition, esp. among the mid-to-high-end class; 3) shift in drinking habits & preferences; and 4) input cost inflation.

Valuation

We kept our top-line and bottom-line forecasts unchanged for 2025-27, since Tsingtao’s operational and financial results appear to be on track.

We maintain our TP for Tsingtao-H/-A at HK$58.80/RMB81.60, equiv. to 16x/24x 25E P/E. Currently, its distressed valuation level can just offer decent risk- reward, in our view. We expect on-premise channel performance to stabilise in the coming quarters, and the possibility of anti-extravagance policy modification cannot be ruled out, which would turn into a positive catalyst and further improve investor sentiment toward beer/baijiu names in China. At this point, positions are still not crowded. Upgrade to BUY rating.