Chinese beer stocks took a frothy turn Tuesday after one of the world’s leading brewers was seen reaffirming its interest in the country’s emerging beer market. Shanghai-listed beer maker Chongqing Brewery Co (CBC) announced Tuesday in an exchange filing that it had received a 2.93 billion yuan ($470.56 million) offer to sell an additional 30.3% stake to the Hong Kong subsidiary of Danish beer giant Carlsberg. The offer values CBC’s shares at 20 yuan [US$3.21], 25.5% above their closing price on February 25, when the company announced that it would be temporarily suspended from trading due to the tentative restructuring deal.
If the offer is accepted, Carlsberg would become CBC’s controlling shareholder, with a total of almost 60% of its mainland-traded A-shares. Carlsberg acquired stakes in CBC first in 2008 and then again in 2010. Carlsberg is willing to place such a hefty premium on CBC’s shares this time largely because of the bright future it sees for the Chinese beer market, CBC explained in its statement.
Word of Carlsberg’s rosy outlook came despite less than impressive results from CBC. When Carlsberg upped its holdings in CBC in 2010, its 2.39 billion yuan [US$380 million] offer priced the company’s shares at 40.22 yuan [US$6.47]. In January 2012, CBC shares plummeted to 26 yuan [US4.18] after a side investment in the pharmaceutical sector failed to pay off. Its price finally settled at 15.9 yuan [US$2.56] late last month.
Affirmation from the overseas beer giant did much to boost confidence in China’s listed brewers, Zhao Yong, a beer industry analyst from Haitong Securities, told the Global Times. CBC, which returned to trading Tuesday, shot to the 10% daily limit to 17.53 yuan [US$2.82] during the morning session. Meanwhile, sector heavy hitter Beijing Yanjing Brewery Co increased 7.5% while Tsingtao Brewery Co rose 4.66%.
Although Zhao supported a favorable outlook on China’s beer market, he noted that conditions may not improve for another two or three years. “China’s beer producers suffer from low profit margins because of over-competition. We expect consolidation for the industry, so it’s worth investing in over the long term,” Zhao said. China’s listed brewers saw their net profit growth slow 2.4 percentage points year-on-year in the third quarter of 2012.
Source: Global Times Mar 2013