07 April, 2006

China: Tsingtao Brewery’s ratings by Merrill Lynch and Deutsche Bank

Merrill Lynch reiterates sell on Tsingtao Brewery (0168.HK) after 2005 results fail to meet expectations, Dow Jones informed on April 5. Says although selling prices continued to improve, gross and operating margins fall; adds, "While we credit Tsingtao for its more profit-oriented strategy, we remain concerned about its lack of pricing power, stunted value creation due to the continued drag from loss-making breweries, unproven ability to execute value-adding acquisitions and new round of industry investment." Says valuations "extremely demanding" on 43.6X 2006E PER. Shares closed Tuesday at HK$10.80. (CNG)

Deutsche Bank trims Tsingtao Brewery's (0168.HK) target price to HK$10.1 from HK$10.3, maintains hold rating; says "we continue to like Tsingtao's solid fundamentals (strong cash flow generation, net cash and market leadership)". Reduces estimated FY06 net profit by 0.9% to CNY392.4 million; adds, stock's downside risk is earning deceleration due to fierce competition. Stock +1.9% to HK$11.0 (JNL)

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