It’s time to buy Chinese breweries... and not just because Chinese will drink more beer this year, analysts say

Chinese brewers are at the dawn of a golden age of multi-year profit growth, according to market analysts, who flagged improving fundamentals and tactical trading opportunities in the sector.

The top five brand names in China by market share are China Resources Beer at 24.6 per cent, Tsingtao Brewery at 17.9 per cent, Budweiser at 15.7 per cent, Yanjing Brewery at 10 per cent and Carlsberg Group at 5 per cent, according to data from Euromonitor.

Large brewers in China are expected to continue with their growth by acquisition strategy, with companies such as China Resources Beer likely to seek out acquisition targets in domestic and international markets.

“We believe that large-scale mergers and acquisitions are likely to materialise in the next three years, which also offers investment opportunities,” said Charlie Chen, an analyst at Deutsche Bank, in a recent report. “While we suggest that investors take long positions on high-quality brewers ... investors could also trade around M&A news to take short-term returns.”

Domestic acquisition targets include state-owned breweries that have good brands and solid balance sheets but are experiencing margin deterioration due to poor management.

“Consolidation in the Chinese beer market seems unavoidable, and we see a high chance that the current big five may eventually become a big three,” Chen said.