China: Tsingtao Brewery maintained as 'sell' by Merrill Lynch

Investment bank Merrill Lynch said it has maintained its 'sell' recommendation for Tsingtao Brewery Co Ltd on concerns over the outlook for growth despite improved earnings last year, AFX posted on April 13.

China's biggest brewer reported on April 12 2004 net profits of 285 mln yuan, up 16.4 pct over the previous year and above Merrill Lynch's estimates, but the brokerage said Tsingtao is likely to continue losing market share and feel margin pressure.Tsingtao's market share dropped to 12.7 pct in 2004 from 12.8 pct in 2003 as competition from Yanjing Brewery and China Resources Brewery intensified, Merrill Lynch said in a research note.

“While beer market growth of around 6% is undoubtedly highly attractive by international standards, it pales by comparison with other fast-moving consumer goods industries in China such as wine, dairy, packaged tea and bottled water, to name but a few,” Merrill Lynch said

“With sales growth decelerating, we believe that Tsingtao is set to lose its number one position in China’s beer market by volume. Margins are under pressure and we expect large write-downs to continue to depress earnings as it attempts to dispose of loss-making breweries.”