China: Tsingtao H2 earnings fell 5 % due to fierce competition

Tsingtao Brewery Co Ltd, the largest Chinese beer maker by revenue, announced on Monday, April 3, its second-half earnings fall 5 percent, due to fierce competition from foreign breweries, according to Reuters.

Tsingtao, which is 27 percent-owned by top U.S. beer maker Anheuser-Busch Cos. Inc., is relying on growth of its flagship brand to help lift prices and margins in a country where a 640-ml bottle -- just over a pint -- can cost only 12 U.S. cents.

China's beer market is the largest in the world by volume and is growing at an annual rate of 7 percent to 10 percent as incomes rise, attracting a flood of investment from global players such as SABMiller , Heineken and Carlsberg , driving up valuations despite narrow profit margins.

"We are seeing intensified competition from international breweries and industry consolidation will continue," the firm said in a statement. But the company added that it is confident of maintaining growth.

Tsingtao, which has also battled higher costs for power, transport and raw materials, had second-half net earnings of 133.4 million yuan (US$16.6 million) for the six months ended Dec. 31, according to Reuters calculations. That compares with 140.4 million yuan a year earlier and lagging an average forecast of 174 million yuan, according to 15 analysts polled by Reuters Estimates.

For the full year, Tsingtao said its net profit totalled 307 million yuan, compared to 285.2 million yuan a year earlier and lagging an average forecast of 347.7 million yuan, according to Reuters Estimates.

Tsingtao's 2005 turnover rose 16 percent to 10 billion yuan, from 8.6 billion a year ago.

Founded 102 years ago by German investors in the port city of Qingdao, Tsingtao controls about 13 percent of the fragmented Chinese market and operates more than 40 breweries.

Tsingtao has long been among the most expensive Chinese stocks traded in Hong Kong as investors seek exposure to the country's consumption boom.

Tsingtao's forward price-to-earnings ratio is about 42 times. Smaller Chinese rival Kingway Brewery Holdings trades at around 25 times 2005 profits.

Tsingtao's Hong Kong-listed shares fell about 0.6 percent in the second half of 2005, lagging a 11 percent rise in the index of Chinese companies listed in Hong Kong known as H-shares. Tsingtao shares rose 3.7 percent on Monday to close at HK$11.20 before the results announcement. (US$1=HK$7.8=8.02 yuan)

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