China: Yanjing Brewery aims to rapid domestic expansion without a foreign partner

Yanjing Brewery Co. Ltd., China's third-largest brewer, hopes to sell 9.3 % more beer in 2006 to secure its dominant market share in Beijing and other cities. The brewery aims to sustain a rapid domestic expansion without a foreign partner, its president said on Tuesday, March 7, according to Reuters news.

Li Fucheng told reporters that the Beijing-based firm aimed to produce 9.3 percent more beer, or 3.4 million tonnes, in 2006, adding that it hopes to sustain gross profit margins at above 40 percent. The brewery sold 3.11 million tonnes last year.

In 2005, Li said Yanjing's revenue jumped 11 percent to 8 billion yuan (US$995 million), while net profit was expected to have risen about 5 percent from 2004, when the corporation earned just 270.51 million yuan.

Yanjing remains the only major Chinese player in the world's fastest-growing beer market that has yet to team up with a global firm. Foreign companies have scrambled in past years to seal pricy acquisitions and build breweries across the country.

"We have no plans to team up with a foreign partner so far because we have the technical expertise and sufficient funds to expand in the market," Li said on the sidelines of an annual parliament meeting in Beijing. "However, if we have funding needs in future, we won't rule out the possibility of partnering with a foreign player. Just not now."

InBev , Anheuser-Busch , SABMiller and Heineken have invested billions of dollars in China to help offset stagnant growth in North America and Western Europe. But Yanjing, which has a Hong Kong-listed parent called Beijing Enterprises Holdings Ltd. , has so far shrugged off advances.

Commenting on the recent acquisition of Fujian Sedrin Brewery by top global brewer InBev for 614 million euros ($752 million), Li said the acquisition price was "relatively high."

"The deal reflects Yanjing and our Hong Kong-listed stock are both seriously undervalued. A foreign brewery company has told us that if Yanjing was up for sale, it could fetch more than US$2 billion," he said, without giving further details. Yanjing's entire market capitalisation amounted to just under US$1 billion, according to Reuters Research.

The price InBev paid for Sedrin translated to US$103 per hectolitre in terms of price to sales. That compared with the US$56 per hectolitre that Anheuser-Busch paid for Harbin Brewery, according to Deutsche Bank. Yanjing, which has a market share of 85 percent in Beijing, is expected to maintain a gross profit margin at 45 to 46 percent in 2006 -- same as last year, Li said without elaborating.

This year, the company also plans to slash capital spending to 200 million yuan to 300 million yuan, after spending 900 million yuan on acquisitions and other investments in 2005. Shares in Yanjing, listed in Shenzhen, ended the morning session fell nearly 2 percent at 7.38 yuan.

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