HAITONG INT'L: Maintains "neutral" rating on BUD APAC (01876), lowers target price to HK$7.9.

HAITONG INT'L released a research report stating that by 2025, it is more likely to be a period of strategic adjustment rather than a period of harvest for BUD APAC (01876). Short-term performance may be under pressure due to reform pains and external shocks. If the company can improve on core issues such as channel transformation and cost control, it is expected to reverse the long-term decline in market share in China and lay the foundation for medium to long-term recovery. The bank projects the company's EPS for 2025-2027 to be $0.05/0.05/0.06 (originally forecasted as $0.07/0.08 for 2025-26), giving a 2025 PE of 19x (previously 19x for 2024), and lowering the target price from HK$10.1 to HK$7.9 while maintaining a neutral rating. Key points from HAITONG INT'L: Pressure in the Chinese market, trend of declining market share needs to be broken In 2024, the company's annual sales volume in the Chinese market decreased by 11.8% year-on-year, with the ton price falling by 1.4% and market share shrinking by 149 basis points compared to the previous year. From 2018 to 2024, the company's CAGR for sales volume in China was -2.6%, while the CAGR for beer production by scale-above enterprises disclosed by the National Bureau of Statistics during the same period was -1.3%, indicating a downward trend in the company's market share in the Chinese beer market. Despite the management's clear goal of increasing market share this year and taking a series of measures such as optimizing inventory management, expanding family channels, and launching innovative products, the bank believes that reversing the trend will be challenging. On the ton price front, as the company gradually shifts its sales focus in the Chinese market from the super high-end segment to the core+ segment, short-term ASP may be affected, but in the long term, this may help the company achieve stable growth in a broader market area. Raising prices in the South Korea market to cope with cost increases, efficiency improvements in India's digital transformation In 2024, the Asia Pacific region saw strong growth, with sales volume/ASP increasing by 3.6%/8.7% year-on-year. The market share in South Korea expanded by 349 basis points, reaching the highest level in a decade. Since April of this year, the company has raised the ex-factory price of beer in South Korea by 2.9% to cope with the pressure of rising import raw material costs, and other international beer companies such as Heineken and Asahi have also raised prices. The price difference between high-end beer and regular beer in South Korea is relatively small compared to other developed countries. Through continuous price increases, the company is committed to further enhancing the profitability of the South Korean market. In 2024, the net revenue of high-end and super high-end product combinations in the Indian market grew by nearly 20%, and over the past five years, the Budweiser brand has doubled its market share in India, making it one of Budweiser's top four global markets. Currently, profitability in India is still lower than in other regions, and through the recent completion of platform integration and digital transformation plans, the company is committed to improving production efficiency and increasing EBITDA profit margins. Facing the dual challenges of leadership changes and turbulent trade environment, 2025 remains a period of strategic adjustment With the appointment of a new CEO and the head of sales for China, the organizational structure and channel strategy of BUD APAC are in a period of deep adjustment and adaptation. Three major core challenges urgently need to be resolved: channel transformation pressure, weak growth in the nightlife channel, and the need for time to expand the catering and family channels. The improvement of management efficiency, with the industry continuously developing, the integration of traditional distribution systems and emerging channels has become a trend, timely feedback on terminal data is increasingly crucial for operational flexibility and market responsiveness. External environmental risks, as a multinational company, may affect profits due to volatility in international trade, supply chain stability, exchange rate fluctuations, and changes in consumer preferences. However, the company has hedged most of its costs for the year, and the new CEO has rich experience in supply chain operations, so the overall risks from rising costs are controllable. Risk warning: changes in consumer preferences, intensifying market competition, and ineffective reform measures.