In the Drink

Asahi's Tsingtao Beer Goes Flat

Cheap brews are a taste countries lose as they get older and richer.
Photographer: Christian Kober/Getty Images
ASAHI GROUP HOLDINGS LTD
-50.00
At Closing, February 21st
5505.00 JPY

There's a thing about beer -- when it's first served, it can be the most refreshing drink on earth. Let it stand for too long, and it risks going flat and stale.

That's the best lesson to draw from the remarkably cheap price at which Asahi Group Holdings Ltd. is disposing of its 18 percent stake in Tsingtao Brewery Co. to Fosun International Ltd.

At HK$27.22 ($3.48) a share, it's a discount of almost a third to the stock's HK$40 close on Wednesday -- a price which, admittedly, has ramped up in recent months in expectation of a deal. Still, since Asahi bought the interest in 2009 there have only been a handful of occasions when the shares have fallen as low as they're selling for now.

Small Beer

Tsingtao's Hong Kong-traded shares have rarely been as cheap as the HK$27.22 at which Asahi is selling them

Source: Bloomberg

While offloading large stakes can be a challenge, that scale of discount -- almost 12 months after Asahi first publicly mooted a transaction -- is an illustration of how little Chinese beer is exciting investors these days.

When SABMiller Plc sold its stake in the country's best-selling Snow brand to ease its takeover by Anheuser-Busch InBev NV last year, the deal came in at about $1.6 billion, well below analyst expectations of around two to three times that amount.

Beijing Yanjing Brewery Co., the country's third-largest beer company, put a 20 percent stake on the block almost three years ago but that still hasn't come to anything.

The Dregs

Chinese beer companies' trailing 12-month operating margins underperform their global peers

Source: Bloomberg

There's a straightforward reason for this: Brewing in China is fiercely competitive, driving operating margins down to the region of 5 percent or so when Asahi is closing in on 10 percent and AB InBev is frequently north of 30 percent.

Still, what's striking about all three deals is that insiders have been consistently more pessimistic about the state of the market than external investors.

There's a warning in that. Across the border, a new frontier has opened up in global brewing just as the sun has been setting on China.

Thai Beverage Pcl spent $4.8 billion buying a majority stake in Saigon Beer Alcohol Beverage Corp., or Sabeco, earlier this week, while Carlsberg A/S has been weighing turning its 18 percent share in Hanoi Beer Alcohol & Beverage JSC, or Habeco, into a controlling interest.

The attractions are well-rehearsed: Vietnam is Asia's third-largest brewery market, with a working-age population that will be bigger than Japan's by 2030 and an economy that's predicted to grow at around 5 percent a year through 2050.

The Growth Curse

Vietnam's GDP per capita in 2035 will be about where China's is now

Source: PricewaterhouseCoopers

Wealth is both a blessing and a curse for brewers, though. Back in 2009 when AB InBev first sold its Tsingtao stake to Asahi, Chief Executive Officer Carlos Brito described China as a "key platform for our global growth strategy." Its willingness to dispose of its Snow interest and put its focus in China on its Budweiser, Stella Artois and Corona brands alongside a Hoegaarden-imitating wheat beer version of its Harbin brand illustrates how things have changed.

Once upon a time, all the interest in China was in its sheer volume as the world's largest beer market. As the country has got more wealthy and brewers have engaged in bruising battles for middle-market share, the smart money is all about premiumization -- which generally means a focus on the sort of prestige imported brands that global brewers already control.

In 2035, when PricewaterhouseCoopers LLP expects Vietnam's GDP per capita to be about where China's was last year, a similar process could easily sideswipe more affordable brews such as Sabeco's Saigon and 333, and Habeco's Ha Noi.

Just as Westerners have switched to drinking wine and craft pale ale, and valuations for Chinese baijiu makers have outpaced those for brewers, cheap beer is a taste countries tend to lose as they get older and richer.

Don't count on Vietnam's bubbly beer stocks being any different.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

    To contact the author of this story:
    David Fickling in Sydney at dfickling@bloomberg.net

    To contact the editor responsible for this story:
    Katrina Nicholas at knicholas2@bloomberg.net

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