Tsingtao Profit Falls as China Slowdown Curbs Beer Drinking

Updated on
Tsingtao Earnings Fall 14% in 2015
  • Net income of 1.7 billion yuan slightly better than estimates
  • Brewer struggling to raise prices as drinkers abandon beer

China’s second-largest brewer, Tsingtao Brewery Co., reported a 14 percent drop in 2015 earnings after an economic slowdown and a consumer shift to different types of alcoholic beverages hurt beer demand.

Net income was 1.71 billion yuan ($263 million) last year, down from 1.99 billion yuan a year earlier, according to a statement sent to the Hong Kong stock exchange on Monday. That compared with the average forecast of 1.68 billion yuan by 11 analysts compiled by Bloomberg.

Sales fell 4.9 percent to 27.6 billion yuan. Analysts had estimated 27.5 billion yuan for the beermaker, based in the eastern port city of Qingdao. The stock dropped as much as 1.7 percent to HK$28.60 in Hong Kong trading Tuesday, while the Hang Seng Index was little changed.

“Tsingtao has had problems with execution,” Daiwa Capital Markets analyst Anson Chan said in an interview before the results. “Its average sales prices are not growing, and its profit margins are declining.”

China’s brewery industry is shrinking, with sales volume declining 5 percent year on year in the third quarter of 2015, according to a January report from the Macquarie Group Ltd. Beer drinking has been affected by the economic slowdown. It’s also lost share to baijiu liquor and wine as Chinese consumers become more health-conscious, the report said.

Beer Prices

The beermaker has been struggling to raise its prices, Chan said. A liter of beer sells for an average $1.60 in China, compared with $7.90 in the U.K. and $4.10 in the U.S., according to data from Macquarie Group and Euromonitor International.

Tsingtao has fallen behind China Resources Beer Holdings Co., which makes the country’s best-selling Snow beer. Both companies held about 13 percent of the beer market in 2005, according to data from Euromonitor. In 2014, the latest year for which data is available, China Resources Beer’s share rose to 23.2 percent market share while Tsingtao had 18.4 percent, according to Euromonitor. 

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