JP Morgan China View 2009-7-17

Tsingtao Brewery
60-70% earnings growth expected in 1H09 - ALERT

1H09 earnings growth at 60-70%: Tsingtao announced that it expects 60-70% earnings growth for 1H09. We believe this refers to headline net profit. For FY09, we expect Tsingtao to report 41% growth in headline net profit and 27% growth in recurring net profit excluding mainly impairment charges. Our headline net profit estimates of RMB984m for FY09 are 8% above Bloomberg consensus.
• What does this imply for 2Q09 vs our estimates: 60-70% earnings growth without any one-off items suggests c30% better than expected earnings for 1H09E. In order to have 60-70% earnings growth without any one-off item, Tsingtao should have achieved the following in 2Q09:
i) 12% y/y revenue growth, iii) 2Q09 gross margin improvement by 5.3% points y/y, iii) SG&A expenses as % of sales stay at the same level of 1Q09 at 24%, and iv) 27% tax rate. In our model, we are looking for:i) 9% revenue growth in 2Q09, ii) 2Q09 gross margin improvement by 2.5% points y/y, iii) SG&A expenses as % of sales at 26.5% in 2Q09 andiv) 27% tax rate.