China beer shares surge on report prices have been boosted

[HONG KONG] Tsingtao Brewery led a jump in Chinese beer stocks, surging the most in more than a decade, after a report beermakers have increased prices by as much as 20 per cent.

Tsingtao surged as much as 23 per cent in Hong Kong Friday, while China Resources Beer (Holdings) climbed as much as 12 per cent. Beijing News earlier reported that Tsingtao and other breweries have raised prices on some products by 10 to 20 per cent due to higher raw material and labour costs.

China Resources declined to comment on the news. Tsingtao representatives couldn't be immediately reached for comment.

"The price hike is a big relief for their cost pressure and thus net profit," said Walter Woo, a CMB International Securities analyst based in Hong Kong. "I would expect their net profit consensus will be lifted by double digits after the price hike."

The price hike comes as the world's largest brewery market sees more competition, with wealthy Chinese drinkers looking to switch to premium goods and foreign labels. Baijiu distiller Kweichow Moutai, the world's most valuable spirits maker, also raised the price for its signature drink for the first time in five years.

Chinese beer makers are racing to overtake foreign brands, including Anheuser-Busch InBev. Asahi Group Holdings said last month it agreed to sell its 20 per cent shareholding in Tsingtao for about US$941 million to Fosun International.

It may be the first time in a decade that Chinese beer producers have raised prices in tandem, said Jennifer So, a Hong Kong-based analyst with China Securities.

"Breweries hadn't been able to raise prices in the past few years due to competition from foreign peers," said So. "The price increases and change in competitive landscape as they move up to higher end products should bode well for their earnings this year."

There may be more to the rally than just the price hikes, according to Ronald Wan, chief executive at Partners Capital International.

"The price element is just one factor," Mr Wan said. "People may also be thinking there will be consolidation in the industry."

BLOOMBERG