China Resources, brewer of Snow beer, to expand retail outlets

Brewer of Snow to expand retail outlets to 'get ahead of the competition' after posting 36.5 per cent first-half growth; shares jump 11.2 per cent on HKEx

PUBLISHED : Saturday, 18 August, 2012, 12:00am
UPDATED : Saturday, 18 August, 2012, 4:39am

China Resources Enterprise, the brewer of Snow Beer, the mainland's No 1 beer in terms of sales volume, said it will grow its retail outlets regardless of the uncertainties in the mainland economy.

Net profit of the beer-to-retail mainland conglomerate rose 36.5 per cent year on year to HK$2.2 billion in the first six months of this year, boosted mainly by the disposal of non-core businesses and gains from asset revaluation.

Shares in the company jumped 11.2 per cent to HK$ 24.25 yesterday, making it the top performer in the Hong Kong Stock Exchange.

Underlying earnings, however, dropped 6.3 per cent year on year, dragged down by higher start-up costs for new supermarkets and the new joint venture with Japan's Kirin Brewery.

Frank Lai Ni-Hium, chief financial officer of China Resources, said: "We want to get ahead of our competitors as they delay their expansion amid the grim economic outlook."

The company opened some 200 retail outlets in the first half and plans to follow it up with 300 more in the second.

Staff costs went up 20 to 25 per cent year on year in its retail units, which could only be partially passed on to customers, leading to a 4 per cent drop in profits in those units to HK$650 million.

Snow Beer, which has a 22 per cent market share on the mainland, saw volumes grow 6 per cent year on year to 5.4 million kilolitres in the first half. Profit from the beer unit rose 14 per cent year on year to HK$375 million.

Profit margins of mainland brewers are far smaller than those of international players because of the fierce domestic competition, Lai said, adding that Snow Beer's net profit margin was 5 per cent, against the global average of 10 per cent.

The company is in the process of upgrading its product mix to improve its margin. The beer is priced in a wide range, from as low as 1 yuan to 80 yuan per bottle, depending on branding and sales location.

Greg Gong, food and beverage analyst at CIMB Securities (HK), said: "Snow Beer needs to work harder than its local peers in upgrading its product mix, as its market share has been built up mainly through price cutting."

Profit at the company's beverage unit plunged 48 per cent as the company spent 100 million yuan in the first half to promote two Kirin tea brands and Fire coffee in Guangzhou, Sichuan and Hunan.

China Resources is looking for acquisitions in retail and beverage sectors. Lai reiterated interest in Guangdong's Kingway Brewery but declined to elaborate. There have been reports of talks between Yanjing Beer, owned by Beijing Enterprise, and Kingway.

Charles Yan, head of greater China consumer research at Yuanta Securities, said: "In terms of financial strength, Snow Beer is in a better position to acquire Kingway."