"Large Institutions" CMB International: Bud APAC's concentrated cost recognition drags down fourth-quarter profits, maintaining a "Neutral" rating

CITIC Securities International published a report indicating that Budweiser APAC (01876.HK) faced concentrated cost recognition and high base pressure, impacting its profitability in the fourth quarter of last year. However, most of the negative factors have been digested, and the demand inflection point is yet to be confirmed. The firm has lowered its EBITDA forecasts for 2025 and 2026 by approximately 5%, with a target price of HKD 7.5, maintaining a "Neutral" rating.

The firm expects Budweiser APAC to face pressure in the fiscal year 2025, as the transitional period encounters increasing headwinds, with the fourth quarter potentially becoming a profitability trough. In the Asia-Pacific West region of China, the low base recovery expectations have not materialized, and the weak dining channel continues to suppress sales. More critically, the pressure on average selling prices has intensified, even exceeding the pressure on sales volume. This is mainly due to the company's strategic acceleration in O2O and home consumption channels, requiring more promotional expenses for high-end brands, while the accounting treatment for distributor subsidies has shifted to a more conservative approach. As a result, the firm expects the operating leverage effect to continue to weaken, and the favorable raw material costs are insufficient to offset the drag on sales volume, compounded by a lack of government incentives in China, leading to severe pressure on profit margins.

The firm now expects the group's fourth-quarter organic EBITDA to decline by approximately 35% and has raised the operating expense ratio by 0.4 percentage points to reflect the following impacts. In the Chinese market, the lack of government subsidies combined with a significant drop in sales has notably worsened the operating leverage effect. In the South Korean market, pre-stocking for the fourth quarter of 2024 has created year-on-year base pressure, while tax audits have resulted in one-time cost impacts. At the group level, there are increased inter-company expenses globally, with a cautious and conservative approach to discount provisions. The firm has lowered its EBITDA forecast for 2026 by 7%, primarily due to the continued weakening of operating leverage