(Source: International Herald Tribune)
Tsingtao Brewery, China's best-known beer brand, posted a 42 percent rise in first-half profit Wednesday on solid revenue growth even as it battles high raw material prices.
China's beer market - the world's largest by volume - is a fragmented industry of nearly 400 brewers.
Tsingtao, a domestic sponsor of the Beijing Olympics, faces stiff competition from foreign and domestic brewers, including Heineken, Carlsberg, Kingway Brewery and the CR Snow joint venture between China Resources Enterprises and SAB Miller.
Tsingtao, 27 percent-owned by the U.S. brewer Anheuser-Busch, said January-June net profit rose to 381.13 million yuan, or $55.51 million, compared with 268.66 million yuan a year earlier.
The result was less than half of analysts' estimated full-year profit forecast of 824 million yuan, according to a consensus of 12 analysts polled by Reuters.
Sales revenues rose 15.6 percent to 7.79 billion yuan, the brewer said.
"Facing the slow growth of market share, and hike of prices such as raw materials, packaging material, labor and energy, the company eased certain pressure brought by price hike through further organizational reform by adjusting the prices of some products of Tsingtao beer," the brewer said in a statement.
Profitability and pricing power is a challenge in China's beer industry, which produces less than $600 million in annual operating profit, says Credit Suisse.
That compares with SAB Miller's $477 million of profit in the 2008 financial year.
Tsingtao, which controls 10 percent of China's popular beer market - trailing the domestic leader CR Snow - is slowly raising prices to combat soaring raw material and packaging costs.
The firm expects raw material costs to add about 1 billion yuan in costs this year, according to Merrill Lynch.
But on Wednesday, Merrill upgraded Tsingtao's rating to buy from underperform after the interim results, and as raw material prices have eased in recent weeks.
Barley is down by 23 percent in the last month, but is still up 32 percent year-over-year in U.S. dollar terms, Merrill said.
Tsingtao's Hong Kong-listed shares shed more than 39 percent in the first half of the year, performing below the roughly 26 percent loss in the index of Chinese companies traded in Hong Kong.
The stock trades at about 17.6 times forecast earnings, cheaper than the local rival Yanjing Brewery, which trades at 26.2 times.
Originally published by Reuters.
(c) 2008 International Herald Tribune. Provided by ProQuest LLC. All rights Reserved.
