China’s top brewer eyes smaller rivals

CHINA’S top brewer could start acquiring smaller competitors to cement its leading position in the Chinese beer market, after buying out venture partner SABMiller and taking full ownership of the world’s best-selling Snow beer.

China Resources Beer (Holdings) Company on Wednesday agreed to buy SABMiller’s stake in Snow Breweries for $1.6 billion (R24.9bn), smoothing the way for a takeover of its partner by Anheuser-Busch (AB) InBev. The Hong Kong-listed unit of China Resources owns 51 percent of the venture.

“Once the SABMiller deal is completed, they may start to buy some small breweries again,” Duncan Fox, a Bloomberg Intelligence analyst, said. Potential targets included Beijing Yanjing Brewery, China’s fourth-biggest brewer by volume, although deals would be subject to balance sheet constraints, he said.

Yanjing, backed by the Beijing municipal government, planned to sell about a 20 percent stake to a foreign strategic partner, people with knowledge of the matter had said in February. The brewer of Yanjing Beer denied those plans.

Small regional breweries with shares of about 2 percent or less make up the bulk of China’s expanding beer consumption, while state-linked beer makers including China Resources and Tsingtao Brewery lead nationally, according to data from Euromonitor International.

Shares of Chinese brewers rose, with Shenzhen-listed Yanjing gaining as much as 1.5 percent to 6.93 yuan (R16.50), its highest intraday level in a week. China Resources Beer and Tsingtao advanced as much as 4 percent and 3.7 percent respectively in Hong Kong trading. The benchmark Hang Seng index fell 0.9 percent.

China Resources plans to buy up regional brewers as it sees “great opportunities” to enhance its presence in this way, the beer unit’s chief financial officer Frank Lai said in August, comparing the strategy to how the company strengthened its position in southern China by buying Kingway Brewery Holdings’ assets in 2013.

Large beer makers such as China Resources might need to merge to gain market share in order to survive, Nicolas Wang, an analyst at Haitong International Securities, said.

They also needed to improve their products to meet Chinese customers’ rising demands for better quality, as the local market was already crowded with low-end beer, Hong Kongbased Wang said.

While Asia has been awash with low-priced beer for decades, rising incomes mean younger connoisseurs are willing to spend more. AB InBev said in a 2015 report that profitability was as much as nine times greater for premium beer in China compared with mainstream lines. – Bloomberg