【英文】瑞信报告：中国啤酒行业报告 China Liquor Sector Fill more beer into the glass(59页)

Capacity closure is one of the most effective ways to improve margin and efficiency  considering a low utilisation rate in the China beer market. After a period of land grab  through fast capacity expansion and M&As by leading players, we notice the industry's  utilisation rate experienced a sharp decrease from 78% in 2013 to 63% in 2016, following  a shrink in the overall industry volume. International beer companies such as ABInBev and  Carlsberg have closed more than ten breweries in China since 2016. Later, more Chinese  players started to join in, although the whole process was not easy. ■ CRB is the pioneer among domestic players. It closed 2/5/13 plants in 2016/17/18,  respectively, and plans to close another 7-10 in 2019. After a series of shutdowns, the  benefit is obvious with the utilisation rate and deprecation/PBT ratio improving to  53.7% and 48.8% in 2018, from 53.1% and 91.6% in 2015. ■ also has a clear path of capacity optimisation. The company shut down two  plants located in Shanghai and Anhui in 2018 and plans to close at least 10 over the next  five years (2-3 each year). As a result, its utilisation rate lift to 57% in 2018 (from 53.8%  in 2017) and depreciation/PBT ratio lowered to 35.9% in 2018 (from 43.9% in 2017). 

The market is concerned whether the rising malt cost will put a dampener on gross margin expansion considering the Australia barley price has been up 17% YoY in 1Q19. Webelieve this pressure is manageable for leading players thanks to their strong bargain power against suppliers, mix improvement and sufficient inventory (3-6 months). We did a sensitivity analysis of CRB and Tsingtao's gross margins, based on different assumptions of malt cost and ASP. Assuming malt cost up 15% and ASP grows 3-4%, our sensitivity analysis shows gross margin could improve to 36.3-36.9% from 35.7% for CRB and expand to 32.3-32.9% from 31.7% for Tsingtao in 2018, or 0.6-1.2 pp for both companies.