China / Hong Kong Monthly Chart Book China Food & Beverage ... 2012 2013 2014 2015F AB-INBEV...

ed-TH / sa-AL

Beer sector: The changes to come CR-Beer to acquire 49% stake from AB-InBev (SAB-

Miller) for HK$12,440m

AB-InBev is gaining market share, while CR-Beer is holding its market share

Brewers’ valuation is getting more reasonable against its historical average

CR-Beer to acquire 49% stake from AB-InBev - positive. CR-Beer has agreed to acquire a 49% stake in CR-Snow from AB-InBev (SAB-Miller) for HK$12,440m (US$1.6bn), translating into a 16.8x FY14 PE or 0.9x P/NAV. The deal would be earnings accretive for CR-Beer as it would almost double its size. Based on our estimates, the combined entity's valuation would be roughly 23x FY15F PE (if assuming 100% debt-financing for the deal), and net gearing to rise to almost c.2x (1H15 net gearing: c.22%). The deal will be completed after AB-InBev’s acquisition of SAB-Miller is finalised.

Despite weak market conditions, CR-Beer still outperformed domestic peers. We estimate that beer industry volume had declined by 5/6% y-o-y (2014: -1% y-o-y) in 2015 on the back of unfavourable macro-environment and weaker demand especially from the hotel & restaurant channels. We expect AB-InBev to have gained the most in terms of market share, on the back of brand acquisitions and stronger product mix improvement. Meanwhile, Tsingtao and Yanjing are expected to have lost market share. Among the domestic players, CR-Beer is likely to continue outperforming given its more proactive expansion in distribution channels into the night-life and e-commerce segments. We expect the top players to maintain ASP growth on improving product mix change.

2016 outlook remains volatile. We believe volatility will still prevail in 1H16 for the beer sector as a whole, and any signs of recovery will only likely be seen starting 2H16. In their recent results announcements, foreign brewers (Carlsberg, AB-InBev) cited operating volatility in China, where their sales volumes have been impacted in 2H15. We have a FULLY VALUED call on Tsingtao Brewery (168.HK, 600600.CH) on weaker earnings outlook, and loss of market share against the other top players. However, from its peak in 2015, Tsingtao has corrected by >50%, with its valuation now at a more reasonable level of 21.6x (168.HK), versus 5-year average of c.30x.

HSI: 20,003 ANALYST Alice HUI, CFA +852 2971 1960 [email protected] Alison Fok +852 2971 1938 [email protected] F&B peer table

PriceHK$

TargetPriceHK$

Upside%

Rec MktCap

(US$m)

F Y16PE (x )

China Mengniu(2319 HK)

11.30 13.25 17 Buy 5,701 14.5

China Modern Dairy(1117 HK)

1.65 1.60 (3) Hold 1,126 8.6

Want Want(151 HK)

5.43 5.30 (2) Hold 8,900 15.8

Tingyi(322 HK)

7.46 8.40 13 Hold 5,378 18.7

Vitasoy #(345 HK)

13.42 14.10 5 Hold 1,803 n.a.

Uni-President(220 HK)

5.21 6.00 15 Hold 2,896 20.0

China Foods(506 HK)

2.93 2.80 (4) Hold 1,055 11.9

Bright Dairy(600597 CH)^

10.80 14.50 34 Hold 2,029 26.0

Tsingtao(168 HK)

29.40 30.80 5 FV 5,444 21.6

Tsingtao(600600 CH)^

27.79 25.50 (8) FV 5,443 24.2

# FY16: FY17; ^ RMB

Beer market share (%) – by volume

12% 13% 15% 16%

17% 18% 19% 18%

23%24% 24% 25%

12%12% 11% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2012 2013 2014 2015F

AB-INBEV Tsingtao CR Beer Yanjing

Source: Company data, DBS Vickers

DBS Group Research . Equity 3 March 2016

China / Hong Kong Monthly Chart Book

China Food & Beverage Monthly

Refer to important disclosures at the end of this report


Food & Beverage

Table of Contents

Share price performance 3

Valuation 4

F&B shareholding changes 6

Raw material cost trends 8

F&B retail price trends 9

Sector – Beer 10

Sector – other alcohol (wine, baiju) 12

Sector – Dairy 13

Sector – Beverages 15

Sector – Edible oil 18

Sector – Slaughter 20

Sub-sector – Others 23

Monitor of F&B climate in China 24


Food & Beverage

Share price performance

F&B Sector PE vs. HSI PE

HK F&B Sector PE vs. A-share F&B Sector PE

5

10

15

20

25

30

35

40

45

Jan

-08

May

-09

Sep

-10

Jan

-12

Jun

-13

Oct

-14

Mar

-16

HK F&B Sector PE HSI PE

x

5

10

15

20

25

30

35

40

45

Jan

-09

No

v-0

9

Oct

-10

Sep

-11

Jul-

12

Jun

-13

May

-14

Ap

r-1

5

Feb

-16

China F&B Sector PE HK F&B Sector PE

x

Source: Thomson Reuters, DBS Vickers

F&B sector price performance

T icker Company 1 mth 3 mths 6 mths 12 mths Ev ent sBrewery sector

168 HK Tsingtao Brewery -H 2.3 (14.7) (16.6) (40.5)600600 CH Tsingtao Brewery -A 2.0 (14.6) (18.5) (30.8)

291 HK CR-Beer 19.8 (0.8) 26.1 77.3Reported weaker than expected 2H15 sales & sales volume (-5% y-o-y ); mainly due to Rmb depreciation, and some S&D

expenses reclassified to sales vs. 2H14000729 CH Beijing Yanjing (0.4) (15.3) (13.0) (20.2)Wine sector

200869 CH Yantai Changyu (2.5) (8.2) (3.8) (13.1)Dairy sector downst ream

2319 HK Mengniu Dairy (1.9) (8.4) (9.8) (35.2)600887 CH IM Yili 1.3 (11.4) (14.8) (2.6)600597 CH Bright Dairy 1.3 (31.1) (30.7) (40.0)Dairy sector - upst ream

1117 HK China Modern Dairy 14.6 (22.9) (17.5) (37.7)6863 HK Huishan Dairy (1.4) 2.5 1.7 121.21431 Hk YST Dairy (12.2) (25.9) (17.3) (54.7)Dairy sector - infant formula powder

1230 HK Yashili (4.5) (12.4) (5.6) (36.8)1112 HK Biostime 7.3 93.1 102.8 4.2002570 CH Beingmate 5.2 (23.6) 6.7 (33.5)Instant Noodle & Bev erage and Others

322 HK Tingy i (16.3) (33.9) (32.1) (61.2) Tingyi issued profit warning

151 HK Want Want 0.7 (10.8) (14.1) (36.5)220 HK UPC 0.4 (19.5) (23.8) (13.2)506 HK China Food 15.4 (20.2) (15.6) 8.5 China Foods issued a profit alert

3799 HK Dali Foods (13.4) (27.6)Slaughter Sector

1068 HK China Yurun 15.7 (15.5) (28.2) (57.3)288 HK WH Group 5.4 14.7 15.9 9.4

Source: Bloomberg Finance L.P., DBS Vickers


Food & Beverage

Valuation

Valuation table

Ta rge t Mkt PE PE Yie ld Yie ld P/Bk P/Bk ROE ROE

Price Price Recom Cap Fisca l 16F 17F 16F 17F 16F 17F 16F 17F

Company Name Code HK$ HK$ HK$m Yr x x % % x x % %

HK l isted

Brewery Sector

Tsingtao Brewery 'H'* 168 HK 29.40 30.80 FV 42,306 Dec 21.6 20.6 1.4 1.5 1.9 1.8 9.2 9.0

China Res.Enterprise 291 HK 15.1 n.a. NR 36,740 Dec 33.6 28.8 1.1 1.2 2.3 2.2 6.4 7.0

MC Wt. a ve rage 27.1 24.4 1.3 1.3 2.1 2.0 7.9 8.1

Da iry Se ctor

China Mengniu Dairy* 2319 HK 11.30 13.25 Buy 44,304 Dec 14.5 12.8 1.6 1.8 1.5 1.4 10.6 11.0

China Modern Dairy* 1117 HK 1.65 1.60 Hold 8,753 Dec 8.6 8.2 0.0 0.0 0.4 0.4 5.3 5.2

Biostime Intl.Holdings 1112 HK 24.95 n.a. NR 15,724 Dec 19.7 17.9 1.6 2.0 3.8 3.3 19.8 19.0

China Huishan Dairy# 6863 HK 2.92 n.a. NR 39,347 Mar 29.9 27.5 0.8 0.7 2.4 2.4 8.5 8.6

Yashili Intl.Holdings 1230 HK 1.70 n.a. NR 8,067 Dec 23.4 21.6 1.3 1.8 1.0 0.9 4.2 5.3

Yuanshengtai Dairy 1431 HK 0.43 n.a. NR 1,681 Dec 3.1 4.8 0.0 0.0 0.3 0.2 9.2 9.3

MC Wt. a ve rage 20.3 18.5 1.2 1.3 2.0 1.8 10.3 10.4

Instant Noodle & Beve rage and Othe rs

Tingyi* 322 HK 7.46 8.40 Hold 41,797 Dec 18.7 16.3 2.7 3.1 1.7 1.6 9.1 9.9

Want Want China* 151 HK 5.43 5.30 Hold 69,164 Dec 15.8 15.2 1.9 2.0 3.2 2.8 22.1 19.5

Uni-President China Hdg.* 220 HK 5.21 6.00 Hold 22,504 Dec 20.0 18.7 1.5 1.6 1.5 1.5 7.9 8.0

Vitasoy Intl.Hdg.*# 345 HK 13.42 14.10 Hold 14,009 Mar 25.2 n.a. 2.7 n.a. 5.9 n.a. 24.5 21.2China Foods* 506 HK 2.93 2.80 Hold 8,196 Dec 11.9 21.5 0.0 0.0 1.2 1.2 10.9 5.5Dali Foods Group Co. 3799 HK 3.62 n.a. NR 49,573 Dec 12.6 11.3 3.4 4.0 3.3 2.8 27.1 26.9MC Wt. a ve rage 15.9 15.1 2.3 2.6 2.6 2.3 18.4 17.4

Slaughte r Sector

China

China Yurun 1068 HK 1.25 n.a. NR 2,278 Dec n.a. n.a. 0.0 0.0 0.1 0.1 (2.0) (2.2)

WH Group 288 HK 4.67 n.a. NR 66,610 Dec 10.5 9.4 3.3 3.7 1.4 1.2 14.0 13.8

MC Wt. a ve rage 10.5 9.4 3.3 3.7 1.4 1.2 14.0 13.8HK-l isted simple ave rage (e x Yurun) 17.9 16.8 1.5 1.7 2.1 1.7 12.6 12.0HK-l isted MC Wt. Avg (e x. Yurun) 18.2 16.8 2.0 2.2 2.2 2.0 13.8 13.4

# FY15: FY16; FY16: FY17

Source: Thomson Reuters, *DBS Vickers


Food & Beverage

Valuation table (continued)

Mkt PE PE Yie ld Yie ld P/Bk P/Bk ROE ROE

Curre nc y Pri c e Ca p Fi sca l 16F 17F 16F 17F 16F 17F 16F 17F

Compa ny Na me Code Loc a l$ US$m Yr x x % % x x % %

A-sha re l i s te d

Wine Se c torYantai Changyu Pion.Wine 'B' 200869 CH HKD 23.1 2,037 Dec 10.8 9.8 2.3 3.2 1.6 1.4 15.1 14.8

Bre we ry Se c tor

Beijing Yanjing Brew.'A' 000729 CH CNY 6.83 2,951 Dec 25.4 24.3 1.3 1.3 1.4 1.4 5.6 5.8

Tsingtao Brewery 'A'* 600600 CH CNY 27.79 5,443 Dec 24.2 23.1 1.3 1.3 2.2 2.0 9.2 9.0

MC wt. Ave ra ge 24.6 23.5 1.3 1.3 1.9 1.8 7.9 7.9

Da i ry Se c tor

Inner Mongolia Yili Indl.Gp.'A' 600887 CH CNY 13.63 12,674 Dec 15.6 13.2 2.9 3.4 3.3 3.1 23.2 23.6

Bright Dairy & Food 'A'* 600597 CH CNY 10.8 2,029 Dec 26.0 20.7 2.3 2.9 3.2 3.0 12.7 15.2

Beingmate Baby & Child Food 'A' 002570 CH CNY 11.3 1,772 Dec 73.9 76.9 0.4 0.4 2.7 3.0 2.1 3.7

MC wt. Ave ra ge (e x. Be ingma te ) 17.1 14.2 2.8 3.3 3.3 3.0 21.8 22.5

Be ve ra ge a nd Othe rsHebei Chengde Lolo 'A' 000848 CH CNY 12.2 1,408 Dec 16.5 15.3 5.4 n.a. 4.6 4.2 29.3 27.6

Sla ughte r Se c torHenan Shuanghui Inv.& Dev.'A' 000895 CH CNY 18.46 9,342 Dec 12.8 12.1 5.6 6.8 3.1 3.1 26.6 27.6

Chine se Lique or Se c tor

Wuliangye Yibin 'A' 000858 CH CNY 23.87 13,892 Dec 13.8 12.4 2.6 3.1 1.9 1.7 14.2 14.4

Kweichow Moutai 'A' 600519 CH CNY 224.2 43,180 Dec 15.4 13.8 2.3 2.6 3.6 3.1 25.1 23.4

Luzhou Lao Jiao 'A' 000568 CH CNY 20.98 4,510 Dec 15.0 12.7 3.5 4.2 2.6 2.4 17.7 19.4

Xinghuacun Fen Wine 'A' 600809 CH CNY 15.89 2,109 Dec 24.5 19.6 1.4 1.8 3.0 2.8 13.9 14.7

Jiangsu Yanghe Brew.Jst. 'A' 002304 CH CNY 62.55 14,452 Dec 15.8 13.8 2.8 3.4 3.5 3.2 24.5 25.8

MC wt. Ave ra ge 15.4 13.6 2.5 2.9 3.2 2.8 22.3 21.8

Condime nts a nd Sa uc e s

Foshan Hai Tian Flfd.'A' 603288 CH CNY 27.44 11,385 Dec 24.2 21.0 1.9 2.2 6.8 6.2 31.8 32.6

Jonjee Hi-Tech Indl. & Coml.Hldg.'A600872 CH CNY 12.24 1,495 Dec 31.1 25.3 0.7 0.8 3.5 3.1 11.0 12.5

Jig.Hengshun Vgr.Ind. 'A' 600305 CH CNY 18.84 871 Dec 30.0 23.5 0.3 0.4 3.6 3.2 11.7 13.5

Jiajia Foodstuff Gp.'A' 002650 CH CNY 5.36 947 Dec 33.3 29.0 0.7 0.2 3.5 3.4 8.8 9.7

MC wt. Ave ra ge 25.9 22.1 1.6 1.8 6.1 5.6 27.0 28.0

21.0 17.7 2.2 2.3 3.2 2.9 17.4 18.5

17.2 15.2 2.6 3.0 3.5 3.1 22.1 22.0

Mul tina tiona l Compa nie s

Nestle 'R' NESN VX CHF 71.15 226,968 Dec 20.9 19.5 3.3 3.4 3.2 3.0 16.0 16.5

Unilever (Uk) ULVR LN GBP 31.165 125,467 Dec 21.2 19.8 2.9 3.3 7.7 6.9 36.2 38.5

Coca Cola KO US USD 43.69 189,156 Dec 22.5 21.3 3.2 3.4 8.0 9.0 33.9 36.6

Pepsico PEP US USD 99.09 143,226 Dec 21.2 19.6 3.0 3.2 11.7 10.7 55.1 58.4

Danone BN FP EUR 63.59 45,934 Dec 20.6 19.0 2.6 2.9 2.9 2.7 14.8 15.0

Mondelez International Cl.A MDLZ US USD 41.33 64,841 Dec 23.6 20.5 1.7 1.9 2.2 2.1 10.0 11.4

Hormel Foods HRL US USD 43.02 22,734 Oct 27.5 26.3 1.3 1.5 5.1 4.7 19.4 19.0

Tyson Foods 'A' TSN US USD 65.58 23,813 Sep 16.4 15.3 0.9 1.1 2.6 2.3 15.7 15.0

Ave ra ge 21.8 20.2 2.3 2.5 5.1 4.9 23.6 24.6

A-sha re l i s te d s imple a ve ra ge (e x Be ingma te )

A-sha re l i s te d MC Wt. a ve ra ge (e x Be ingma te )

# FY15: FY16; FY16: FY17

Source: Thomson Reuters, *DBS Vickers


Food & Beverage

F&B shareholding changes

Shareholding changes (%)

Sha re s Va lueAve ra ge

pric eTota l

sha re hold ing% of sha re

c a pi ta lCompa ny Mi l l (HK$m) (HK$/sha re ) (m sha re ) %

Feb-16 6863 HK Huishan Dairy Yang Kai (Chairman) Add Open Market 4.14 12 2.95 9,922 73.6%



Feb-16 345 HK VitasoyCommonwealth Bankof Australia

Add Open Market 2.89 40 13.93 94 9.0%

Feb-16 291 HK CR-Beer FMR LLC Add Open Market 2.50 31 12.57 122 5.0%

Feb-16 2319 HK China MengniuCommonwealth Bankof Australia

Add Open Market 3.17 35 11.08 550 14.0%

Jan-16 322 HK Tingyi Wei-Ing Chou Add Open Market 3.35 32 9.41 1,911 34.1%





Jan-16 345 HK Vitasoy Mathews International Reduce Open Market 0.31 4 14.36 62 6.0%

Jan-16 322 HK Tingyi Wei (Chairman) Add Open Market 1.34 14 10.76 1,901 33.9%

Sha re holde r TypeDa te Tic ke rAdd/

re duc e

Source: Company data, other sources


Food & Beverage

F&B related share repurchases

Da te Tic ke r Compa ny Sha re s Va lue Sha re s(m) (HK$m) (HK$/sha re ) (m)

Feb-16 1314 Tsui Wah Hldg 1.24 1.74 1.47-1.4 2.6 0.19

Feb-16 1314 Tsui Wah Hldg 0.51 0.72 1.41-1.39 1.4 0.1

Feb-16 1314 Tsui Wah Hldg 0.66 0.93 1.43-1.4 0.9 0.06

Feb-16 1314 Tsui Wah Hldg 0.22 0.31 1.42-1.39 0.2 0.02

Feb-16 52 Fairwood Hold 0.01 0.31 22.45-22.4 0.3 0.237

Feb-16 151 Want Want China 8.49 46.04 5.45-5.38 415.3 3.157

Feb-16 151 Want Want China 15.00 80.33 5.40-5.16 406.8 3.092

Feb-16 52 Fairwood Hold 0.00 0.09 22.30 0.3 0.226

Jan-16 52 Fairwood Hold 0.01 0.22 22.30 0.3 0.223

Jan-16 52 Fairwood Hold 0.03 0.56 22.30-22.25 0.3 0.215

Jan-16 52 Fairwood Hold 0.01 0.11 n.m 0.2 0.196

Jan-16 151 Want Want China 8.05 39.57 4.97-4.87 391.8 2.978






Jan-16 829 Shenguan Hldgs 2.00 1.92 0.97-0.93 32.0 0.97

Jan-16 2319 Mengniu Dairy 1.00 10.86 10.86-10.84 3.3 0.167










Jan-16 52 Fairwood Hold 0.00 0.11 23.60 0.1 0.091




Jan-16 52 Fairwood Hold 0.02 0.36 n.m 0.1 0.052



Shares purchased YTDsince ordinary resolutionRa nging

pric e s % of sha reca pi ta l

Source: Company data, other sources


Food & Beverage

Raw material cost trends

Overview of pricing change of raw materials

y -o-y m-o-m YTD y -o-y y -o-y m-o-m YTD y -o-y% % % % % %

Grain

Wheat China 3.5 (3.1) 6.5 9.6 (0.6) 9.6

Rice China 22.4 (0.8) 24.1 25.9 11.6 25.9

Corn China (13.2) (1.1) (12.3) (11.3) (2.1) (11.3)

Malt ing Barley A ust ralia Spot (4.9) 0.0 (6.4) (7.9) 0.0 (7.9)

Dairy

Whole milk powder F onterra (37.5) (12.6) (24.1) (6.6) (3.6) (6.6)

Sk immed milk powder F onterra (32.3) (4.1) (27.1) (21.5) (0.9) (21.5)

Raw milk China 2.9 1.1 0.1 (2.5) (1.1) (2.5)

USDA Whole milk powder (30.5) (3.2) (23.4) (15.2) (6.7) (15.2)

USDA Sk immed milk powder (30.3) (2.0) (26.8) (23.1) (2.0) (23.1)

Oil crushing

Soy bean CBOT (12.2) (0.9) (12.2) (12.1) (0.1) (12.1)

Crude Palm Oil (KLCE) 9.3 7.9 4.9 0.5 3.6 0.5

Other agricultural goods

White sugar China 6.1 (1.4) 8.5 10.8 (1.9) 10.8

White sugar Braz il 16.6 0.1 10.9 5.8 (1.5) 5.8

Cof fee ( ICE ) (24.8) (0.5) (28.0) (30.9) (2.7) (30.9)

Cocoa ( ICE ) (2.6) (1.7) (0.9) 0.8 (12.0) 0.8

Orange J uice (NYCE) (1.8) 0.3 (5.6) (9.1) (10.3) (9.1)

F eedstuf f

Soy bean meal ( CBOT ) (22.1) (2.0) (21.8) (21.5) (2.1) (21.5)

DDGS (26-28%) Southern China (29.1) 0.3 (30.5) (31.8) 1.1 (31.8)

Packaging

PET China 2.6 (1.3) (1.2) (4.8) 5.1 (4.8)

A luminum China (16.1) 0.6 (15.5) (14.9) 1.7 (14.9)

T in LME (14.4) 13.6 (22.0) (29.2) (6.3) (29.2)

F eb-16 J an-16

Source: Bloomberg Finance L.P, CEIC


Food & Beverage

F&B retail price trends

Overview of retail pricing changes

y-o-y m-o-m YTD y-o-ys. y-o-y m-o-m YTD y-o-y% % % % % %

Be e r

Be e r 4.4 4.3 5.0 4.3 4.2 2.9

Da i ry

Mi lk 3.9 0.8 1.5 2.8 0.3 3.4

Yogurt 1.5 0.6 (0.0) 1.0 0.8 2.7

Infa nt formula loc a l bra nds 0.3 (0.1) (0.1) 0.5 0.5 1.8

Infa nt formula fore ign bra nds 1.7 0.3 0.9 1.5 0.0 2.0

Fru i ts & Ve ge ta b le

Ca bba ge 26.0 11.8 26.0 0.2 0.1 0.1

Apple (12.3) (0.2) (12.3) (8.6) 0.6 (1.8)

Ed ib le o i l

Soybe a n Oi l (1.1) 0.0 (1.1) (1.8) 0.1 (1.1)

Pe a nut Oi l 2.0 0.0 2.0 1.5 0.5 (0.3)

Ra pe o i l 1.5 1.5 21.4 1.7 1.3 22.1

Gra inR ic e 0.7 0.2 0.7 0.2 0.1 0.1

Flour 0.2 (0.0) 0.2 0.5 0.0 0.9

Suga r 11.9 11.9 1.0 11.8 11.7 (0.8)

Me a t & poul try

Pork 19.9 3.9 19.9 13.7 0.7 3.0

Be e f (0.4) 0.0 (0.4) 0.2 0.0 0.9

Mutton (8.1) 0.5 (4.0) (8.4) (1.7) (4.9)

Chic ke n 2.5 0.5 1.0 2.1 0.4 3.5

Egg (6.4) 1.0 (6.4) (8.7) (0.1) (1.8)

De c -15Ja n-16

Source: CEIC, MOC, NDRC, NBS


Food & Beverage

Sector – Beer

CR-Beer (291.HK) released its 2H15 sales and sales volume data, which recorded a decline of 5% and 2% respectively. However, it was noted that 2H15 factored in Rmb depreciation of 5-6% and S&D expenses which were previously not accounted in net sales. News flow

Date Company Ticker Title News & comments Feb-16 Carlsberg CARLB:DC Carlsberg

reports slower growth in China

Carlsberg releases 2015 results. China reported 2% decline in sales volume organically vs. industry est. decline of 5%. Premium brand, Tuborg, continues to perform well, growing by >50%. Overall volume decline was predominantly in the mainstream category in selected provinces. Volume grew well in Xinjiang and Chongqing, while Eastern Assets business was under pressure from competition and beer market decline. In China, Carlsberg closed 5 breweries; and have since closed 2 more in 2016. Carlsberg is still pending final approval for its asset swap for Wusu Beer Group in Xinjiang, China.

Feb-16 AB-InBev Bev:US AB-InBev releases 2015 results

AB-InBev expects industry volume to remain under pressure in FY16, though the Company will still outperform industry, driven by premium and super premium brands. Overall, AB-InBev estimates industry volume declined by almost 6% in FY15. Organic volume grew 0.4%, which increased its market share to 18.6% (+1%), on the back of successful commercial strategy, increasing distribution in growth channels.

Feb-16 Asahi Group Holdings

n.a Asahi makes binding offer for SAB-Miller brands

Asahi Group Holdings has made a binding offer to buy beer brands Peroni and Grolsch, as well as some of SAB-Miller's European operations for EUR2.55bn. The binding offer will apply to Royal Dutch Grolsch, Peroni, Miller Brands U.K, Meantime Brewing Company and sales and marketing offices in France.

Sales volume % of industry volume (by Company) Top domestic players – sales volume % yoy

12% 13% 15% 16%

17% 18% 19% 18%

23%24% 24% 25%

12%12% 11% 11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2012 2013 2014 2015F

AB-INBEV Tsingtao CR Beer Yanjing

‐30%

‐25%

‐20%

‐15%

‐10%

‐5%

0%

5%

10%

15%

20%

25%1Q

14

2Q14

3Q14

4Q14

1Q15

2Q15

3Q15

Tsingtao CRE Yanjing

Production volume: beer % y-o-y Grain: Rice (China) prices

(20)

(15)

(10)

(5)

0

5

10

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

l itre mn

Production volume y-o-y

%

1,800

2,000

2,200

2,400

2,600

2,800

3,000

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

RMB/ton


Food & Beverage

Grain: Barley (Canada) spot price Grain: Malting barley Australia spot price

0

50

100

150

200

250

300

Jan/

13

Jul/1

3

Jan/

14

Jul/1

4

Jan/

15

Jul/1

5

Jan/

16

US$/BSL

200

240

280

320

360

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

US$/ton

Source: CEIC, Wind, Euromonitor, Bloomberg Finance L.P., Company data, DBS Vickers


Food & Beverage

Sector – other alcohol (wine, baiju) News flow Date Company Ticker Title News & comments Feb-16 n.a n.a Full-year import wine data

reported 2015 imported wine volume increased 42.5% y-o-y, versus value up 20.7%. Of which, Australia, Spain and Chile saw the largest jump in value and volume y-o-y.

Feb-16 COFCO, ST Jiugui

000799.CH

COFCO takes on the structuring of ST-Juigui platform

COFCO will be taking on more responsibility in the restructuring of ST.JuiGui. Originated from Hunan, ST. JuiGui is involved in the production and manufacturing of white-spirits.

Feb-16 Bairun 002568.CH

Bairun releases weaker than expected sales on Rio

Rio, a premixed cocktail drink brand, reported weaker than expected sales in 2H15, owing to overstuffing in distribution channels.

Wine market share (by Company) 2014 Import wine market share (by country) 2015

COFCO , 3.0Changyu, 3.0

Yantai Weilong , 0.9Citic Guoan , 0.9 Vats, 0.9

Castel Group, 0.7

Macrolink, 0.6

Others, 90.0

France

29%

Australia

13%Chile29%

Spain

14%

Italy4% Others

11%

Import volume (wine)

Import ASP (wine)

(40.0)

(20.0)

0.0

20.0

40.0

60.0

80.0

100.0

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Jan‐13

Jun‐13

Nov‐13

Apr‐14

Sep‐14

Feb‐15

Jul‐15

Dec‐15

(KL)

Import volume % y‐o‐y

‐40%

‐30%

‐20%

‐10%

0%

10%

20%

30%

0

1,500

3,000

4,500

6,000

7,500

9,000

Jan‐13

Jun‐13

Nov‐13

Apr‐14

Sep‐14

Feb‐15

Jul‐15

Dec‐15

USD/KL

Import ASP % y‐o‐y

Production volume – grape wine

Production volume: baijiu

(40)

(30)

(20)

(10)

0

10

20

30

50 60 70 80 90

100 110 120 130 140 150

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

litre mn

Value '000 tons y-o-y

%

(10)

(5)

0

5

10

15

20

600

700

800

900

1,000

1,100

1,200

1,300

1,400

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

litre mn


%

Source: CEIC, WIND, Euromonitor, Bloomberg Finance L.P., Company data


Food & Beverage

Sector – Dairy

News flow

Date Company Ticker Title News & comments

Jan-16 Yashili, Biostime

1230.HK, 1112.HK,

Revised Food Safety Law places limits on infant formula variety

Newly revised Food Safety Law guideline suggests that each brand infant formula recipe will be limited to 3 series and 9 formulas, after registering with CFDA. This will apply to 103 domestic companies and 73 foreign companies in total. This is expected to take place in 1H16.

Jan-16 Nanfang Black Sesame

n.a Nanfang Black Sesame fails food inspection test

Five of Nanfang Black Sesame products fails Beijing's food inspection test due to excessive levels of coliforms. The products include: Black Sesame (Walnut flavour), Black Sesame paste (AD Calcium), Black Sesame (Sugar free), Southern black Sesame paste (Sugar-free).

Jan-16 San Yuan 600429:CH

San Yuan acquires Baxi ice-cream

San Yuan pays RMB1.3bn for 90% stake of Baxi ice-cream. Baxi specialises in high-end ice-cream. In addition, it has expertise in low-end dairy products, which should be a good synergy with San Yuan, which has a strong presence in UHT dairy products.

Jan-16 Yakult Honsha Co.

n.a Yakult launches Yakult Light

Yakult launches low-calorie, low-sugar version of Yakult fermented milk drink starting Jan-16 in Shanghai, following the launch in Guangzhou in Oct-15. It is expected to reach 500k bottles/day/annum, with ASP at Rmb12/5 bottles (100ml).

Market share (by Company) 2015 Production volume- dairy

Others28%

Mengniu25%

Yili25%

Bright Dairy9%

Wahaha7%

Nestle6%

(10)

(5)

0

5

10

15

20

1,700

1,900

2,100

2,300

2,500

2,700

Oct

-13

Feb-1

4

Jun-1

4

Oct

-14

Feb-1

5

Jun-1

5

Oct

-15

'000 tons


%

Production volume- milk Import volume: liquid milk

(10)

(5)

0

5

10

15

20

25

1,200

1,400

1,600

1,800

2,000

2,200

2,400

Oct

-12

Feb-1

3

Jun-1

3

Oct

-13

Feb-1

4

Jun-1

4

Oct

-14

Feb-1

5

Jun-1

5

Oct

-15

'000 tons


%

(50)

0

50

100

150

200

250

300

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Jan-

13

Jun-

13

Nov-

13

Apr-

14

Sep-

14

Feb-

15

Jul-1

5

Dec-

15

Liquid milk % y-o-y

MT %

Source: CEIC, Euromonitor, Bloomberg Finance L.P., Company data


Food & Beverage

Import volume – milk powder Dairy: raw milk prices (China)

(100)

(50)

0

50

100

150

200

020000400006000080000

100000120000140000160000180000

Jan-

13

Jun-

13

Nov-

13

Apr-

14

Sep-

14

Feb-

15

Jul-1

5

Dec-

15

MT

Milk powder % y-o-y

%

3.0

3.2

3.4

3.6

3.8

4.0

4.2

4.4

Feb-

13

Aug-

13

Feb-

14

Aug-

14

Feb-

15

Aug-

15

Feb-

16

RMB/kg

Dairy: WMP Fonterra price Grain: Alfalfa (US) price

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Feb-

13

Aug-

13

Feb-

14

Aug-

14

Feb-

15

Aug-

15

Feb-

16

US$/ton

0

50

100

150

200

250

300

350

400

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

Grain – soybean meal price Grain: Corn (China) price

250

300

350

400

450

500

550

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

1,500

1,700

1,900

2,100

2,300

2,500

2,700

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

Rmb/ton

Source: CEIC, Euromonitor


Food & Beverage

Sector – Beverages

News flow

Date Company Ticker Title News & comments

Jan-16 Starbucks SBUX.US Starbucks cites store expansion in China

Starbucks plans to open 500 stores in China this year, with goal to have 10,000 stores by 2019. Starbucks management noted it has yet to see slowdown in the Chinese economy, as compared with its peers Yum Brand.

Feb-16 Wahaha n.a Wahaha introduces star beverages for 2016

Wahaha held a conference to release its new beverage strategy as young, hip and individualistic. Star products include Qihuo Pi Vitamin Drink, Wahaha Crystal Diamond, Aidisheng Yogurt Cheese, Kaffee Coffee, Huoli 8-hour energy drink.

Market share – water (by volume) Production volume – Water

Tingyi25%

Wahaha13%

Farmer's Spring27%

C'estbon23%

Coca‐Cola11%

Run Tian1%

(5)

0

5

10

15

20

25

30

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

Production volume – soft drink

Production volume – Carbonated drink

(10)

(5)

0

5

10

15

20

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

(20)

(10)

0

10

20

30

40

500 700 900

1,100 1,300 1,500 1,700 1,900 2,100 2,300

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

Source: AC Nielson CEIC, Euromonitor


Food & Beverage

White sugar (China) price

White sugar (Brazil) price

3,000

4,000

5,000

6,000

7,000

8,000

Feb/

13

Jun/

13

Oct/1

3

Feb/

14

Jun/

14

Oct/1

4

Feb/

15

Jun/

15

Oct/1

5

Feb/

16

RMB/ton

10

15

20

25

30

Feb/

13

Jun/

13

Oct/1

3

Feb/

14

Jun/

14

Oct/1

4

Feb/

15

Jun/

15

Oct/1

5

Feb/

16

US$/ton

Packaging – PET China price Packaging – Aluminium (China) price

8,000 8,500 9,000 9,500

10,000 10,500 11,000 11,500 12,000 12,500 13,000

Feb/

13

Jun/

13

Oct

/13

Feb/

14

Jun/

14

Oct

/14

Feb/

15

Jun/

15

Oct

/15

Feb/

16

RMB/ton

8,000

10,000

12,000

14,000

16,000

18,000

Feb/

13

Jun/

13

Oct

/13

Feb/

14

Jun/

14

Oct

/14

Feb/

15

Jun/

15

Oct

/15

Feb/

16

RMB/ton

Packaging – Tin LME price

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Feb/

13

Jun/

13

Oct

/13

Feb/

14

Jun/

14

Oct

/14

Feb/

15

Jun/

15

Oct

/15

Feb/

16

US$/ton

Source: CEIC, Euromonitor


Food & Beverage

Sector – Instant noodles

Market share (by Company) 2015 Production volume – instant noodles

Tingyi46%

Uni‐president17%

Hualong8%

Baixiang8%

Others21%

(25)(20)(15)(10)(5)0 5 10 15 20

500

600

700

800

900

1,000

1,100

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

Oil crushing – crude palm oil (KLCE) price

Grain: Wheat (China) price

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

2,100

2,300

2,500

2,700

2,900

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

RMB/ton

Source: AC Nielson, CEIC, Euromonitor, Bloomberg Finance L.P., Company data


Food & Beverage

Sector – Edible oil

Market share (by Company) 2015 Production volume – cooking oil

Kerry 41%

COFCO10%

Shandong Luhua

7%

Shanghai Liangyou

3%

Shanghai Standard Foods

3%

Others36%

(10)

(5)

0

5

10

15

20

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

Import volume – soybean

Import volume – soybean oil

0

200

400

600

800

1,000

1,200

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

'000 ton

0

50

100

150

200

250

300

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

'000 ton

Oil crushing – soybean CBOT price

300

350

400

450

500

550

600

650

Feb/

13

Aug

/13

Feb/

14

Aug

/14

Feb/

15

Aug

/15

Feb/

16

US$/ton

China crushing margins

(400)(300)(200)(100)

0 100 200 300 400

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16Rmb/ton

Source: CEIC, Euromonitor, Bloomberg Finance L.P.


Food & Beverage

Oil crushing – soybean oil price (China) Soybean meal price (US)

11.0

11.2

11.4

11.6

11.8

12.0

12.2

12.4

12.6

Jan/

13

Jul/1

3

Jan/

14

Jul/1

4

Jan/

15

Jul/1

5

Jan/

16

rmb/litre

250

300

350

400

450

500

550

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

Argentina crude soybean oil FOB price Oil crushing – crude palm oil (KLCE) price

500

700

900

1,100

1,300

Feb/

13

Aug

/13

Feb/

14

Aug

/14

Feb/

15

Aug

/15

Feb/

16

US$/ton

1,500

1,700

1,900

2,100

2,300

2,500

2,700

2,900

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

Source: CEIC, Euromonitor, Bloomberg Finance L.P.


Food & Beverage

Sector – Slaughter

News flow

Date Company Ticker Title News & comments Dec-15 WH Group 288.HK WH Group opens new

factory plant in Zhengzhou

WH Group opens Smithfield plant in Zhengzhou Shuanghui Industrial Park. It has a daily production capacity of 100 tonnes, which will be focusing on American-style bacon, ham and sausages. The plant investment totaled RMB800m.

2H15 n.a n.a NDRC revises guideline on minimum criteria

NDRC announced a revised notice on the 2012 release of "Cyclical fluctuation in the market prices of live pigs “with revised pig to grain ratio from 6:1 to 5.5:1-5.8:1. This is to reduce the warning line with improving response mechanism to trigger central reserve of frozen pork purchasing and storage.

V alue y -o-y m-o-m V alue y -o-y m-o-m

% % % %

Pig to F eedstuf f Rat io x 8.7 64.0 4.1 8.4 49.6 5.8

Hog Price rmb/kg 18.4 44.6 3.9 17.7 32.0 5.2

Corn wholesale price rmb/kg 2.1 (11.8) (0.2) 2.1 (11.7) (0.5)

Ex-F actory pork price rmb/kg 24.1 34.3 3.3 23.3 26.2 4.6

Piglet price rmb/kg 34.6 80.1 7.6 32.2 66.8 8.9

Number of Pig Stock 000 0.00 0.00 0.00 438,949 (2.0) (2.7)

Number of Sow Pig Stock 000 0.00 0.00 0.00 37,850 (9.7) (0.4)

F eb-16 J an-16

Unit

Production volume - Fresh & Refrigerated Meat

China hog price

(10)

(5)

0

5

10

15

2,000 2,200 2,400 2,600 2,800 3,000 3,200 3,400 3,600 3,800 4,000

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

11 12 13 14 15 16 17 18 19 20 21 Rmb/kg

Source: CEIC


Food & Beverage

China ex-factory pork price

Number of sow pig stock

14

16

18

20

22

24

26

28 Rmb/kg

30,000

35,000

40,000

45,000

50,000

55,000

'000

Number of slaughtered hog

Number of pig stock

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

'000

400,000

420,000

440,000

460,000

480,000

500,000

'000

Pig to feedstuff ratio US & China hog price difference

4.0 4.5 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0

Feb/

13

Aug

/13

Feb/

14

Aug

/14

Feb/

15

Aug

/15

Feb/

16

X

0.0

0.5

1.0

1.5

2.0

2.5

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

(x)

Source: CEIC


Food & Beverage

Feed stock: China DDGS (Southern China) price

Soybean meal price

1,000

1,400

1,800

2,200

2,600

3,000

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

Rmb/ton

250

300

350

400

450

500

550

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

Piglet price US hog price

10

15

20

25

30

35

40 Rmb/kg

1.0 1.2 1.4 1.6 1.8 2.0 2.2 2.4 2.6 2.8 3.0

Feb/

13

Aug/

13

Feb/

14

Aug/

14

Feb/

15

Aug/

15

Feb/

16

US$/ton

Source: CEIC, Bloomberg, Company data


Food & Beverage

Sub-sector – Others

News flow Date Company Title News & comments Jan-16 China Foods Disposal of confectionary

business China Foods disposes confectionary business to COFCO Property (000031:CH) for RMB611m, mainly for the land asset situated in Shenzhen.

Jan-16 Hengan Possible spin-off of snack food business

Hengan is considering the possibility of a spin-off and separate listing of its snack food business on the Hong Kong Stock Exchange by way of introduction. Shares of the spun-off entity owned by Hengan will be distributed to the shareholders of Hengan. Hengan management believes that the spin-off will allow two entities to focus on their respectively businesses.

Jan-16 n.a Xijinping reiterates importance of food safety measures

President Xijinping calls for strictest measures to ensure food safety. Separately, Premium Li Keqiang pledges zero tolerance for food safety violation and ensures timely punishment for guilty parties. Li emphasized the whole food production process from farm to table must be well controlled under the law.

Jan-16 n.a Supply side reform on agriculture upgrade

China is set to roll-out 13th five-year plan on supply-side reform measures to modernise agriculture. The five-year plan aims to improve on structural issues in the system, for example corn oversupply and shortage of soybean, which indicates an imbalance between supply and demand. High production costs are also an issue that will be addressed. China will diversify its supply of agricultural products, and create more trusted brands, reduce cost through scale management and explore better innovation business models through combining production with tourism.

Feb-16 COFCO, Dahchonghong

COFCO signs strategic alliance with Dahchonghong for imported products

COFCO signs strategic alliance with Dah-Chong Hong with intention to expand its imported offerings and become an integrated global supply food chain.

Feb-16 n.a Increase food inspections during CNY

Through a food safety application, customers are able to scan bar code to know whether the product has passed quality inspection or how many times it failed in the past.

Mar-16 COFCO COFCO speeds up restructuring process

Since the operation shift of sugar operations from Huafu Corp. to COFCO Tunhe (600737.SH), it is understood that Huafu's meat operation has also been transferred to COFCO Group. Huafu restructuring is said to be completed at this stage.

Production volume: confectionery

(10)(5)0 5 10 15 20 25 30 35 40

100

150

200

250

300

350

400

450

Oct

-13

Feb-

14

Jun-

14

Oct

-14

Feb-

15

Jun-

15

Oct

-15

'000 tons


%

Source: CEIC, Company data


Food & Beverage

Monitor of F&B climate in China

China - Temperature China - Precipitation

(5)

0

5

10

15

20

25

30

1 2 3 4 5 6 7 8 9 10 11 12

celcius

2013 2014 2015 2016

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

1 2 3 4 5 6 7 8 9 10 11 12

Macrons

2013 2014 2015 2016

Beijing - Temperature Beijing - Precipitation

(10)

(5)

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7 8 9 10 11 12

Celcius

2013 2014 2015 2016

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1 2 3 4 5 6 7 8 9 10 11 12

Macrons

2013 2014 2015 2016

Shanghai - Temperature Shanghai - Precipitation

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7 8 9 10 11 12

celcius

2013 2014 2015 2016

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1 2 3 4 5 6 7 8 9 10 11 12

Macrons

2013 2014 2015 2016

Source: Bloomberg Finance L.P


Food & Beverage

Guangdong - Temperature Guangdong - Precipitation

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7 8 9 10 11 12

celcius

2013 2014 2015 2016

10

2,010

4,010

6,010

8,010

10,010

12,010

14,010

16,010

18,010

1 2 3 4 5 6 7 8 9 10 11 12

Macrons

2013 2014 2015 2016

Chongqing - Temperature Chongqing - Precipitation

0

5

10

15

20

25

30

35

0 1 2 3 4 5 6 7 8 9 10 11 12

celcius

2013 2014 2015 2016

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

1 2 3 4 5 6 7 8 9 10 11 12

Macrons

2013 2014 2015 2016

Source: Bloomberg Finance L.P


Food & Beverage

DBSV recommendations are based an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return i.e. > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame)

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Food & Beverage

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