CHINA: Tsingtao stays at “sell” - report

By just-drinks.com editorial team | 20 April 2006

Investment bank Merrill Lynch has continued to rate China's Tsingtao Brewery with a "sell" call due to fierce domestic competition, according to reports.

The investor reiterated its 'sell' and cautious stance on the Chinese beer sector and Tsingtao Brewery, and also forecasted that the brewer could lose its position as market leader.

"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 yesterday (19 April).

The bank also said it did not consider Tsingtao's 55% valuation premium to the China beverage sector adequately justified by industry leadership, growth, returns or M&A.

"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," the broker added.

Tsingtao had not responded to requests for comment as just-drinks went to press.

Sectors: Beer & cider