12
ed-KK/ sa-CS / AH Time to raise your glasses Top pick BUD APAC (1876.HK) for its strong recovery potential on very low comps and intact premiumisation growth Time to revisit CR Beer (291.HK) given better visibility of on-trade channel recovery and premiumisation growth. Upgrade to BUY Positives of margin upticks priced in for Tsingtao Brewery, maintain HOLD/FULLY VALUED for H (168.HK)/A (600600.CH) Top pick BUD APAC: Expect recovery with very low comps Despite short-term setbacks in South Korea due to resurgence of COVID-19 cases in 3Q20, BUD APAC’s volume has seen decent sequential improvement along with premiumisation growth intact (premium beer saw high-single-digit volume growth in 3Q20 in China). Going forward, we expect BUD APAC to see a 26% EBITDA CAGR in FY20-22F from a very low base. Its higher sales exposure in on-premise channel may also turn into strength (was a drag in 2020) as the pandemic impact fades in the medium term. We believe that BUD APAC still has M&A potential in the Southeast Asia in the longer term. CR Beer: Time to revisit, upgrade to BUY with unchanged TP of HK$58. Since we downgraded CR Beer to HOLD on 20 August, its share price has continued to stay under the HK$54 level, underperforming the market. We expect CR Beer should achieve mid-single-digit sales growth in 3Q20E on improving product mix, and we believe now could be a better entry point given higher visibility of on-trade channel recovery and premiumisation growth of its Heineken products (strong double-digit growth YTD). Going forward, we are also positive about its margin improvement with its ongoing capacity optimisation exercise and we expect its adjusted EBITDA margin to achieve 24% by 2020F (vs. 15% in FY19). Maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H. Tsingtao Brewery has showcased its resilience against the pandemic and delivered decent 3Q20 results on improved profitability. The counter (H-share) is currently trading at c.14x FY21F EV/EBITDA, more than 1SD above its 3-year H-share average, which has factored in the company’s improving profitability and resilient sale volume growth in our view. We maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H on rich valuation. HSI: 26,016 ANALYST Vincent YANG +852 36684197 [email protected] Mavis HUI +852 36684188 [email protected] Recommendation & valuation Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”) Target Mkt PE Company Name Cur Price Price Recom Cap 21F Local$ Local$ US$m x Budweiser Brewing Co. (1876 HK) HKD 22.75 29.16 BUY 38,858 33.1 China Resources Beer (291 HK) HKD 50.85 58.03 BUY 21,276 38.3 Tsingtao Brewery 'H' (168 HK) HKD 64.20 69.71 HOLD 14,156 27.6 Tsingtao Brewery 'A' (600600 CH) CNY 81.43 63.37 FV 14,156 41.0 DBS Group Research . Equity China / Hong Kong Industry Focus China Brewery Sector 10 Nov 2020 Refer to important disclosures at the end of this report

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Page 1: China / Hong Kong Industry Focus China Brewery Sector

ed-KK/ sa-CS / AH

Time to raise your glasses

• Top pick BUD APAC (1876.HK) for its strong recovery

potential on very low comps and intact premiumisation

growth • Time to revisit CR Beer (291.HK) given better visibility

of on-trade channel recovery and premiumisation

growth. Upgrade to BUY

• Positives of margin upticks priced in for Tsingtao

Brewery, maintain HOLD/FULLY VALUED for H

(168.HK)/A (600600.CH)

Top pick BUD APAC: Expect recovery with very low comps

Despite short-term setbacks in South Korea due to resurgence

of COVID-19 cases in 3Q20, BUD APAC’s volume has seen

decent sequential improvement along with premiumisation

growth intact (premium beer saw high-single-digit volume

growth in 3Q20 in China). Going forward, we expect BUD

APAC to see a 26% EBITDA CAGR in FY20-22F from a very

low base. Its higher sales exposure in on-premise channel may

also turn into strength (was a drag in 2020) as the pandemic

impact fades in the medium term. We believe that BUD APAC

still has M&A potential in the Southeast Asia in the longer

term.

CR Beer: Time to revisit, upgrade to BUY with unchanged TP of

HK$58. Since we downgraded CR Beer to HOLD on 20 August,

its share price has continued to stay under the HK$54 level,

underperforming the market. We expect CR Beer should

achieve mid-single-digit sales growth in 3Q20E on improving

product mix, and we believe now could be a better entry point

given higher visibility of on-trade channel recovery and

premiumisation growth of its Heineken products (strong

double-digit growth YTD). Going forward, we are also positive

about its margin improvement with its ongoing capacity

optimisation exercise and we expect its adjusted EBITDA

margin to achieve 24% by 2020F (vs. 15% in FY19).

Maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H.

Tsingtao Brewery has showcased its resilience against the

pandemic and delivered decent 3Q20 results on improved

profitability. The counter (H-share) is currently trading at c.14x

FY21F EV/EBITDA, more than 1SD above its 3-year H-share

average, which has factored in the company’s improving

profitability and resilient sale volume growth in our view. We

maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H on

rich valuation.

HSI: 26,016

ANALYST

Vincent YANG +852 36684197 [email protected]

Mavis HUI +852 36684188 [email protected]

Recommendation & valuation

Source: Thomson Reuters, DBS Bank (Hong Kong) Limited (“DBS HK”)

Target Mkt PE

Company Name Cur Price Price Recom Cap 21F

Local$ Local$ US$m x

Budweiser Brewing Co.

(1876 HK)HKD 22.75 29.16 BUY 38,858 33.1

China Resources Beer

(291 HK)HKD 50.85 58.03 BUY 21,276 38.3

Tsingtao Brewery 'H'

(168 HK)HKD 64.20 69.71 HOLD 14,156 27.6

Tsingtao Brewery 'A'

(600600 CH)CNY 81.43 63.37 FV 14,156 41.0

DBS Group Research . Equity

China / Hong Kong Industry Focus

China Brewery Sector

10 Nov 2020

Refer to important disclosures at the end of this report

Page 2: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 2

While CR Beer doesn’t announce its quarterly preperformance,

BUD APAC and Tsingtao Brewery have released their 3Q20

results earlier with key takeaways as follows:

BUD APAC

BUD APAC’s 3Q20 results were largely in line with market

expectations. On the group level, organic revenue grew by

2.2% to US$1.8bn on 1% volume growth and 1.2% average

selling price (ASP) increase, driven by improving channel mix

and ongoing premiumisation in China. Organic normalised

EBITDA remained flattish while normalised net earnings

increased to US$320m in 3Q20 (vs. US$310m in 3Q19).

Sales recovery on track in China. In APAC West (mostly China),

sales grew by 1.9% due to 1.1% volume increase and 0.8%

ASP hike in 3Q20, while normalised EBITDA edged up by 3.5%

(vs. 16% decline in 9M20). BUD APAC saw 4.8% revenue

growth in 3Q20 on 3.1% volume growth and 1.6% ASP

increase, with high-single-digit volume growth for premium

products and strong double-digit growth for its super premium

beer portfolio. As of September, over 90% of BUD APAC’s

nightlife channel points of sales had reopened in China. Going

forward, we expect the APAC West region to see significant

volume growth in FY21F on very low comps and revenue

should hit FY19 levels (US$5.2bn) or even higher, supported by

the continuous trend of premiumisation.

Short-term challenges in S. Korea due to fluctuation of COVID-

19 cases. In APAC East (mostly South Korea), sales grew by

3.3% mostly due to ASP increase in 3Q20. Sales volume has

remained largely flattish due to another COVID-19 outbreak in

mid-August in Korea, despite low comps. Normalised EBITDA

declined by 13.1% in 3Q20. While BUD APAC still remains the

market leader in South Korea, especially in the restaurant

channel via the Cass brand, we understand that given the

changing channel mix during the pandemic, BUD APAC’s

market share has declined YoY and QoQ in South Korea. We

are turning more positive about its growth recovery in the

South Korea market given its continuous investment in

branding and potential ease of COVID-19 cases in the medium

term with the help of vaccines. We expect BUD APAC to

achieve low-teens sales growth in FY21F mainly on volume

recovery.

BUD APAC remains our top pick on 1) strong recovery

potential on low comps, 2) ongoing premiumisation growth in

both China and South Korea, 3) potential M&A opportunities

in SEA. We have lowered our normalised FY20F/21F/22F

EBITDA by 6%/ 8%/ 8% on slower recovery in South Korea in

3Q20. Our sum-of-the-the-parts (SOTP)-based TP of HK$29.16

is based on APAC West (mostly China) being valued at

unchanged 23x FY21F EV/EBITDA and APAC East (mainly South

Korea) at an unchanged 15x FY21F EV/EBITDA.

CR Beer

Expect 3Q20E to achieve mid-single-digit sales growth. Despite

temporary volume disruption during July and August in some

of its base markets such as Sichuan and Anhui due to

unfavourable weather and floods, we believe CR Beer should

still achieve mid-single-digit sales growth in 3Q20E, supported

by ongoing product mix improvement. We understand that CR

Beer’s flagship premium product Heineken Silver has been

well-received among consumers, as well as its upper mid-range

product SuperX. We expect its premium beer sales volume

should sustain strong double-digit growth YTD.

Upgrade to BUY with unchanged TP of HK$58. Since we

downgraded the counter to HOLD on 20 August, its share

price has continued to stay under the HK$54 level,

underperforming the market. Given the better visibility of on-

premise channel sales recovery in FY21F as well as its strong

premium beer sales growth, we are turning more positive

about its near-term share price performance. Going forward,

we also expect the company to achieve remarkable margin

improvement thanks to its continuous capacity optimisation

exercise. We estimate the company’s adjusted EBITDA margin

should arrive at 24% by FY22F vs. 15% in FY19.

Tsingtao Brewery

Decent 3Q20 results on improved GP margin. Similar to BUD

APAC’s performance in China, Tsingtao Brewery’s 3Q20

revenue also grew by 4.8%, thanks to 3.0% volume growth

and 1.8% ASP hike. Thanks to its like-for-like price hike for

some of its products in major markets as well as soft raw

material prices, its GP margin improved by 2ppt to 42.4%. Its

SG&A expense/Revenue ratio also improved by 0.6ppt mainly

on better management of marketing expenses.

Net losses expected to narrow compared to 4Q19. Given

typically low seasons in 4Q and relatively high fixed costs and

promotional expenses for its distributors, Tsingtao Brewery

normally incurs losses in 4Q. We believe the company is likely

to narrow its net losses to slightly over RMB600m (vs.

RMB734m losses in 4Q19), given improved GP margin and

allocation of marketing expenses.

Page 3: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 3

Maintain FULLY VALUED/HOLD for Tsingtao Brewery A/H. We

raise Tsingtao Brewery’s FY20F/21F/22F EBITDA by 32%/ 21%/

16% to factor in the like-for-like price hike in Tsingtao

Brewery’s base markets in 3Q20. Our new TP of HK$69.7

(RMB63.4) is pegged to 16x FY21F EV/EBITDA (1 SD above its

3-year A-share average, previously 14x FY21F EV/EBITDA).

Budweiser Brewing APAC (1876 HK) –EV/EBITDA band

CR Beer (291 HK) – Adjusted EV/EBITDA band

Tsingtao Brewery (168 HK) –EV/EBITDA band

Tsingtao Brewery (600600 CH) –EV/EBITDA band

Source: Thomson Reuters, DBS HK

15

20

25

30

35

40

45

Sep-1

9

Oct

-19

Nov-

19

Dec

-19

Jan-2

0

Feb-2

0

Mar-

20

Apr-

20

May-

20

Jun-2

0

Jul-20

Aug-2

0

Sep-2

0

Oct

-20

Share Price (HK$)

16.8x

20.5x

24.2x

27.9x

31.6x

0

10

20

30

40

50

60

70

Dec

-16

Mar-

17

May-

17

Aug-1

7O

ct-1

7Ja

n-1

8M

ar-

18

Jun-1

8A

ug-1

8N

ov-

18

Jan-1

9A

pr-

19

Jul-19

Sep-1

9D

ec-1

9Fe

b-2

0M

ay-

20

Jul-20

Oct

-20

Share Price (HK$)

9.4x

12.8x

16.2x

19.5x

22.9x

20

30

40

50

60

70

80

Jun-1

6

Sep-1

6D

ec-1

6M

ar-

17

Jun-1

7

Sep-1

7D

ec-1

7M

ar-

18

Jun-1

8

Sep-1

8D

ec-1

8M

ar-

19

Jun-1

9

Sep-1

9D

ec-1

9M

ar-

20

Jun-2

0

Sep-2

0

Share Price (HK$)

5.0x

8.1x

11.2x

14.3x

17.5x

0

10

20

30

40

50

60

70

80

Jun/1

7

Nov/

17

Apr/

18

Sep/1

8

Feb/1

9

Jul/19

Dec

/19

Share Price (HK$)

6.2x

10.3x

14.3x

18.4x

22.4x

Page 4: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 4

Peers valuation

# FY20: FY21; FY21: FY22

Source: Thomson Reuters, *DBS HK

Target Mkt PE PE P/Bk P/Bk ROE ROE

Price Price Cap 20F 21F 20F 21F 20F 21F 20F 21F

Company Name Code Cur Local$ Local$ US$m x x x x x x % %

China

A -share listed

Beijing Yanjing Brew.'A' 000729 CH CNY 8.15 n.a. 3,474 107.2 79.9 1.7 1.7 19.0 16.6 1.6 2.0

Chongqing Brew.'A' 600132 CH CNY 105.58 n.a. 7,727 92.2 80.7 33.5 28.4 61.6 55.4 39.6 40.8

Tsingtao Brewery 'A'* 600600 CH CNY 81.43 63.37 14,156 46.9 41.0 5.0 4.4 26.7 22.4 11.2 11.4

A v erage 82.1 67.2 13.4 11.5 35.8 31.5 17.5 18.1

Hong Kong listed

Budweiser Brewing Co.* 1876 HK HKD 22.75 29.16 38,858 55.3 33.1 3.8 3.5 23.1 16.7 7.0 10.9

China Resources Beer* 291 HK HKD 50.85 58.03 21,276 57.0 38.3 6.4 5.8 27.3 21.5 11.3 15.9

Tsingtao Brewery 'H'* 168 HK HKD 64.20 69.71 14,156 31.5 27.6 3.3 3.0 16.1 13.3 11.2 11.4

A v erage 47.9 33.0 4.5 4.1 21.7 17.4 9.8 12.8

SEA

Carlsberg Brewery Mal. CAB MK MYR 19.76 n.a. 1,463 30.0 22.6 29.2 27.6 19.3 15.1 120.6 143.5

Heineken Malaysia HEIM MK MYR 19.00 n.a. 1,390 29.5 19.9 13.1 12.7 17.4 12.9 47.8 68.3

San Miguel F&B FB PM PHP 63.95 n.a. 7,855 33.5 26.0 4.2 3.9 11.0 9.2 12.6 16.4

Thai Beverage Public THBEV SP SGD 0.64 n.a. 11,919 16.0 14.5 2.9 2.6 14.8 13.6 18.9 19.4

A v erage 27.3 20.7 12.3 11.7 15.6 12.7 50.0 61.9

Other dev eloped A sian markets

Asahi Group Holdings 2502 JP JPY 3690 n.a. 18,011 21.3 13.1 1.3 1.2 12.9 9.6 6.3 9.7

Kirin Holdings 2503 JP JPY 2094 n.a. 18,519 23.0 15.7 2.1 2.0 9.8 7.9 8.9 12.7

Sapporo Holdings 2501 JP JPY 1904 n.a. 1,452 n.a. 56.7 0.9 0.9 14.4 11.6 (2.7) 1.2

Hitejinro 000080 KS KRW 34650 n.a. 2,204 21.9 18.9 2.2 2.1 8.8 8.2 10.4 11.5

A v erage 22.0 26.1 1.6 1.5 11.5 9.3 5.7 8.8

Mult inat ional Companies

Anheuser-Busch Inbev ABI BB EUR 53.1 n.a. 127,311 28.6 19.7 1.6 1.5 12.2 11.2 4.6 8.3

Carlsberg B CARLB DC DKK 917.80 n.a. 21,586 23.2 20.5 3.1 3.0 11.5 10.6 13.7 14.9

Pernod-Ricard RI FP EUR 158.45 n.a. 49,269 126.6 29.2 3.0 2.8 34.9 18.1 2.2 9.9

Boston Beer 'A' SAM US USD 949.6 n.a. 11,626 61.4 42.1 12.2 9.9 33.9 23.1 22.5 26.2

Molson Coors Beverage TAP US USD 41.16 n.a. 8,919 9.7 9.8 0.6 0.6 6.8 6.8 6.1 6.1

A v erage 49.9 24.3 4.1 3.6 19.9 14.0 9.8 13.1

EV /EBITDA

Page 5: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 5

Budweiser Brewing Company APAC (1876 HK Equity, HK$22.75, BUY, Target Price 12-mth HK$ 29.16 (Prev. HK$31.68)) Forecast & Valuation General Data

FY Dec (US$ m) 2019A 2020F 2021F 2022F At A Glance

Issued Capital (m shrs) 13,243

Mkt Cap (HK$m/US$m) 301,278 / 38,858

Major Shareholders (%)

AB InBev Brewing Company Holdings

(APAC) Ltd. 87.2

Free Float (%) 12.8

3m Avg. Daily Val. (US$m) 25.46

GICS Industry: Consumer Goods / Beverages

Turnover 6,546 5,674 6,557 7,061 EBITDA 2,121 1,624 2,190 2,592 Pre-tax Profit 1,367 1,025 1,603 2,024 Net Profit 898 703 1,174 1,482 Net Pft (Pre Ex) (core profit) 996 723 1,194 1,502 Net Profit Gth (Pre-ex) (%) (0.4) (27.4) 65.2 25.8 EPS (US$) 0.07 0.05 0.09 0.11 EPS (HK$) 0.53 0.41 0.69 0.87 Core EPS (HK$) 0.58 0.42 0.70 0.88 Core EPS (US$) 0.08 0.05 0.09 0.11 EPS Gth (%) (6.3) (21.8) 67.0 26.2 Core EPS Gth (%) (0.4) (27.5) 65.2 25.8 Diluted EPS (HK$) 0.53 0.41 0.69 0.87 DPS (HK$) 0.20 0.14 0.24 0.30 BV Per Share (HK$) 6.37 6.06 6.52 7.10 PE (X) 43.2 55.3 33.1 26.2 Core PE (X) 38.9 53.7 32.5 25.9 P/Cash Flow (X) 28.1 28.3 20.1 18.4 P/Free CF (X) 50.5 47.7 28.3 25.1 EV/EBITDA (X) 18.0 23.1 16.7 13.7 Net Div Yield (%) 0.9 0.6 1.1 1.3 P/Book Value (X) 3.6 3.8 3.5 3.2 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 9.0 7.0 10.9 12.7 Earnings Rev (%): (7) (9) (9) Consensus EPS (US$) 0.05 0.09 0.10 Other Broker Recs: B:18 S:2 H:0 Income Statement (US$ m) Balance Sheet (US$ m)

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F

Turnover 6,546 5,674 6,557 7,061 Net Fixed Assets 3,638 3,625 3,627 3,629 Cost of Goods Sold (3,058) (2,660) (2,928) (3,015) Invts in Assocs & JVs 418 400 400 400 Gross Profit 3,488 3,014 3,629 4,045 Other LT Assets 9,144 9,101 9,035 8,972 Other Opg (Exp)/Inc (2,022) (2,004) (2,048) (2,061) Cash & ST Invts 992 1,406 2,419 3,497 Operating Profit 1,466 1,010 1,581 1,985 Inventory 438 364 369 380 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 652 497 539 580 Associates & JV Inc 23 28 30 33 Other Current Assets 26 12 12 12 Net Interest (Exp)/Inc (24) 7 12 25 Total Assets 15,308 15,406 16,401 17,471 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) (98) (20) (20) (20) ST Debt 235 100 100 100 Pre-tax Profit 1,367 1,025 1,603 2,024 Other Current Liab 4,258 4,003 4,205 4,283 Tax (459) (321) (428) (540) LT Debt 28 0 0 0 Minority Interest (10) (1) (1) (1) Other LT Liabilities 903 903 903 903 Preference Dividend 0 0 0 0 Shareholder’s Equity 9,836 10,352 11,143 12,134 Net Profit 898 703 1,174 1,482 Minority Interests 48 49 50 51 Net profit before Except. 996 723 1,194 1,502 Total Cap. & Liab. 15,308 15,406 16,401 17,471 EBITDA 2,121 1,624 2,190 2,592 Sales Gth (%) (2.9) (13.3) 15.6 7.7 Non-Cash Wkg. Cap (3,142) (3,129) (3,285) (3,310) EBITDA Gth (%) 6.4 (23.4) 34.8 18.3 Net Cash/(Debt) 729 1,306 2,319 3,397 Opg Profit Gth (%) 12.9 (31.1) 56.5 25.6 Effective Tax Rate (%) 33.6 31.3 26.7 26.7 Cash Flow Statement (US$ m) Segmental Breakdown (US$ m) / Key Assumptions

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F

Pre-Tax Profit 1,367 1,025 1,603 2,024 Revenues (US$ m) Dep. & Amort. 655 614 609 607 APAC East 1,370 1,171 1,302 1,373 Tax Paid (459) (321) (428) (540) APAC West 5,176 4,502 5,255 5,687 Assoc. & JV Inc/(loss) (7) (7) (7) (7) Total 6,546 5,674 6,557 7,061 (Pft)/ Loss on disposal of FAs

FAFAsiaries/Investments (-/+)

(105) 0 0 0 EBITDA (US$ m) Chg in Wkg.Cap. (209) 64 157 25 APAC East 446 327 430 491 Other Operating CF 137 (1) (1) (1) APAC West 1,675 1,298 1,760 2,101 Net Operating CF 1,379 1,374 1,933 2,107 Total 2,121 1,624 2,190 2,592 Capital Exp.(net) (611) (560) (560) (560) EBITDA Margins (%) Other Invts.(net) 0 0 0 0 APAC East 32.6 27.9 33.0 35.8 Invts in Assoc. & JV (185) 0 0 0 APAC West 32.4 28.8 33.5 36.9 Div from Assoc & JV 0 0 0 0 32.4 28.6 33.4 36.7 Other Investing CF 103 50 50 50 Key Assumptions Net Investing CF (693) (510) (510) (510) Organic volume growth of APAC East (7.2) (8.1) 9.0 3.0 Div Paid (976) (247) (411) (519) Organic volume growth of APAC West (2.3) (11.3) 11.0 3.0 Chg in Gross Debt 68 (88) 0 0 Organic ASP growth of APAC East 2.3 1.3 2.0 2.3 Capital Issues 5,695 0 0 0 Organic ASP growth of APAC West 6.3 (0.7) 5.0 5.0 Other Financing CF (6,186) 0 0 0 Organic Normalized EBITDA Margin 32.4 28.6 33.4 36.7 Net Financing CF (1,399) (335) (411) (519) Currency Adjustments (32) 0 0 0 Chg in Cash

(745) 529 1,012 1,078 Source: Company, DBS HK

Page 6: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 6

China Resources Beer (291 HK EQUITY, HK$50.85, BUY (Upgrade from Hold), Target Price 12-mth HK$ 58.03) Forecast & Valuation General Data

FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance

Issued Capital (m shrs) 3,244

Mkt Cap (HK$m/US$m) 164,957 / 21,276

Major Shareholders (%)

China Resources Co Ltd 51.9

Free Float (%) 48.1

3m Avg. Daily Val. (US$m) 44.25

GICS Industry: Consumer Staples / Food, Beverage & Tobacco

Turnover 33,190 31,550 34,453 36,407 EBITDA 3,996 4,990 6,789 8,239 Pre-tax Profit 2,202 3,374 5,236 6,744 Net Profit 1,312 2,467 3,671 4,728 Net Pft (Pre Ex) (core profit) 2,293 2,993 4,185 5,226 Net Profit Gth (Pre-ex) (%) 0.7 30.5 39.8 24.9 EPS (RMB) 0.40 0.76 1.13 1.46 EPS (HK$) 0.47 0.89 1.33 1.71 Core EPS (HK$) 0.83 1.08 1.51 1.89 Core EPS (RMB) 0.71 0.92 1.29 1.61 EPS Gth (%) 34.3 88.0 48.8 28.8 Core EPS Gth (%) 0.7 30.5 39.8 24.9 Diluted EPS (HK$) 0.47 0.89 1.33 1.71 DPS (HK$) 0.19 0.36 0.54 0.70 BV Per Share (HK$) 7.91 7.94 8.75 9.68 PE (X) 107.2 57.0 38.3 29.8 Core PE (X) 61.3 47.0 33.6 26.9 P/Cash Flow (X) 34.3 21.1 25.1 24.1 P/Free CF (X) 53.9 26.6 32.8 30.3 EV/EBITDA (X) 34.3 26.4 18.9 15.1 Net Div Yield (%) 0.4 0.7 1.1 1.4 P/Book Value (X) 6.4 6.4 5.8 5.3 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 6.4 11.3 15.9 18.5 Earnings Rev (%): Nil Nil Nil Consensus EPS (RMB) 0.82 1.16 1.44 Other Broker Recs: B:24 S:4 H:5 Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F

Turnover 33,190 31,550 34,453 36,407 Net Fixed Assets 19,413 17,620 16,988 16,315 Cost of Goods Sold (20,964) (19,326) (20,111) (20,218) Invts in Assocs & JVs 0 0 0 0 Gross Profit 12,226 12,225 14,342 16,190 Other LT Assets 12,403 12,355 12,314 12,277 Other Opg (Exp)/Inc (9,954) (8,837) (9,092) (9,432) Cash & ST Invts 2,340 7,328 10,946 14,434 Operating Profit 2,272 3,388 5,250 6,758 Inventory 6,018 5,189 5,238 5,104 Other Non Opg (Exp)/Inc 872 389 84 (145) Debtors 1,000 864 944 997 Associates & JV Inc 0 0 0 0 Other Current Assets 417 417 417 417 Net Interest (Exp)/Inc 39 123 416 628 Total Assets 41,591 43,774 46,846 49,545 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) (981) (527) (514) (498) ST Debt 601 232 232 232 Pre-tax Profit 2,202 3,374 5,236 6,744 Other Current Liab 19,255 20,843 21,683 21,796 Tax (892) (911) (1,571) (2,023) LT Debt 124 330 330 330 Minority Interest 2 4 6 7 Other LT Liabilities 1,884 2,578 2,578 2,578 Preference Dividend 0 0 0 0 Shareholder’s Equity 21,890 21,957 24,196 26,788 Net Profit 1,312 2,467 3,671 4,728 Minority Interests (2,163) (2,167) (2,172) (2,180) Net profit before Except. 2,293 2,993 4,185 5,226 Total Cap. & Liab. 41,591 43,774 46,846 49,545 EBITDA 3,996 4,990 6,789 8,239 Sales Gth (%) 4.2 (4.9) 9.2 5.7 Non-Cash Wkg. Cap (11,820) (14,373) (15,084) (15,278) EBITDA Gth (%) 23.6 24.9 36.0 21.3 Net Cash/(Debt) 1,615 6,766 10,384 13,872 Opg Profit Gth (%) 43.8 49.1 55.0 28.7 Effective Tax Rate (%) 40.5 27.0 30.0 30.0 Cash Flow Statement (RMB m) Segmental Breakdown (RMB m) / Key Assumptions

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F

Pre-Tax Profit 2,202 3,374 5,236 6,744 Revenues (RMB m) Dep. & Amort. 1,724 1,602 1,539 1,480 Eastern region 16,927 16,091 17,571 18,545 Tax Paid (706) (911) (1,571) (2,023) Central region 8,073 7,674 8,380 8,889 Assoc. & JV Inc/(loss) 0 0 0 0 Southern region 8,190 7,785 8,502 8,973 (Pft)/ Loss on disposal of FAs

FAFAsiaries/Investments (-/+)

891 366 353 337 Total 33,190 31,550 34,453 36,407 Chg in Wkg.Cap. 71 2,470 549 36 EBIT (RMB m) Other Operating CF (84) (219) (512) (724) Eastern region 1,007 1,609 1,933 2,596 Net Operating CF 4,098 6,682 5,595 5,849 Central region 598 652 838 1,067 Capital Exp.(net) (1,490) (1,400) (1,300) (1,200) Southern region 714 1,012 1,275 1,525 Other Invts.(net) 0 0 0 0 Total 2,319 3,273 4,046 5,188 Invts in Assoc. & JV (2,216) 0 0 0 EBIT Margins (%) Div from Assoc & JV 0 0 0 0 Eastern region 5.9 10.0 11.0 14.0 Other Investing CF 938 400 400 400 Central region 7.4 8.5 10.0 12.0 Net Investing CF (2,768) (1,000) (900) (800) Southern region 8.7 13.0 15.0 17.0 Div Paid (487) (535) (1,006) (1,498) Total 7.0 10.4 11.7 14.3 Chg in Gross Debt (241) 0 0 0 Key Assumptions Capital Issues 0 0 0 0 Mid-to-high-end beer revenue

share (%)

56.3 57.6 59.1 60.3 Other Financing CF (150) (14) (14) (14) Average selling price growth

(%)

2.8 (2.0) 4.0 4.5 Net Financing CF (878) (549) (1,020) (1,512)

Sales volume growth (%) 1.3 (3.0) 5.0 1.1 Currency Adjustments (73) (42) (57) (49) Adjusted EBITDA margin (%) 15.0 17.5 21.2 24.0 Chg in Cash 379 5,091 3,617 3,488 Core net margin (%) 7.1 9.5 12.1 14.4 Source: Company, DBS HK

Page 7: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 7

Tsingtao Brewery (168 HK EQUITY, HK$64.20, HOLD, Target Price 12-mth HK$ 69.71 (Prev. HK$53.5))

Tsingtao Brewery (600600 CH Equity, RMB81.43, FULLY VALUED, Target Price 12-mth RMB 63.37 (Prev. RMB47.76)) Forecast & Valuation General Data

FY Dec (RMB m) 2019A 2020F 2021F 2022F At A Glance

Issued Capital - H shares (m shs) 655

- Non H shrs (m shs) 696

H shs as a % of Total 48

Total Mkt Cap (HK$m/US$m) 108,321 / 14,156

Major Shareholders (%)

Tsingtao Brewery Group Company

Limited 57.1

Major H Shareholders (As % of H shares)

Fosun International Ltd 26.8

E Fund Management Co. Ltd. 8.0

Tsingtao Brewery Group Company

Limited 5.9

Baillie Gifford & Co. 5.3

H Shares-Free Float (%) 54.0

3m Avg. Daily Val. (US$m) 26.92

GICS Industry: Consumer Staples / Food, Beverage & Tobacco

Turnover 27,984 28,168 30,537 32,483 EBITDA 2,819 3,419 3,951 4,492 Pre-tax Profit 2,727 3,422 3,891 4,518 Net Profit 1,852 2,347 2,682 3,130 Net Pft (Pre Ex) (core profit) 1,347 1,804 2,339 2,787 Net Profit Gth (Pre-ex) (%) 27.8 33.9 29.6 19.2 EPS (RMB) 1.37 1.74 1.99 2.32 EPS (HK$) 1.61 2.04 2.33 2.72 Core EPS (HK$) 1.17 1.57 2.03 2.42 Core EPS (RMB) 1.00 1.34 1.73 2.06 EPS Gth (%) 30.2 26.7 14.3 16.7 Core EPS Gth (%) 27.8 33.9 29.6 19.2 Diluted EPS (HK$) 1.61 2.04 2.33 2.72 DPS (HK$) 0.64 0.81 0.93 1.09 BV Per Share (HK$) 17.29 19.23 21.50 23.99 PE (X) 39.9 31.5 27.6 23.6 Core PE (X) 54.9 41.0 31.6 26.5 P/Cash Flow (X) 18.4 17.6 19.7 12.7 P/Free CF (X) 25.9 18.9 20.6 13.1 EV/EBITDA (X) 20.6 16.1 13.3 10.7 Net Div Yield (%) 1.0 1.3 1.5 1.7 P/Book Value (X) 3.7 3.3 3.0 2.7 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 9.8 11.2 11.4 11.9 Earnings Rev (%): 31 21 15 Consensus EPS (RMB) 1.59 1.90 2.18 Other Broker Recs: B:11 S:1 H:9 Income Statement (RMB m) Balance Sheet (RMB m)

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019A 2020F 2021F 2022F

Turnover 27,984 28,168 30,537 32,483 Net Fixed Assets 10,401 10,457 10,405 10,362 Cost of Goods Sold (17,080) (16,994) (18,094) (19,095) Invts in Assocs & JVs 0 0 0 0 Gross Profit 10,903 11,174 12,442 13,388 Other LT Assets 5,910 5,516 5,369 5,233 Other Opg (Exp)/Inc (9,187) (8,825) (9,537) (9,921) Cash & ST Invts 16,826 20,003 22,667 27,250 Operating Profit 1,717 2,349 2,906 3,467 Inventory 3,182 2,405 3,345 2,723 Other Non Opg (Exp)/Inc 0 0 0 0 Debtors 151 133 144 153 Associates & JV Inc 21 21 21 21 Other Current Assets 843 843 843 843 Net Interest (Exp)/Inc 484 509 621 687 Total Assets 37,312 39,357 42,773 46,565 Dividend Income 0 0 0 0 Exceptional Gain/(Loss) 505 543 343 343 ST Debt 271 271 271 271 Pre-tax Profit 2,727 3,422 3,891 4,518 Other Current Liab 13,083 12,785 13,496 14,313 Tax (798) (975) (1,109) (1,288) LT Debt 0 0 0 0 Minority Interest (77) (100) (100) (100) Other LT Liabilities 3,298 3,298 3,298 3,298 Preference Dividend 0 0 0 0 Shareholder’s Equity 19,918 22,161 24,766 27,641 Net Profit 1,852 2,347 2,682 3,130 Minority Interests 742 842 942 1,042 Net profit before Except. 1,347 1,804 2,339 2,787 Total Cap. & Liab. 37,312 39,357 42,773 46,565 EBITDA 2,819 3,419 3,951 4,492 Sales Gth (%) 5.3 0.7 8.4 6.4 Non-Cash Wkg. Cap (8,907) (9,404) (9,164) (10,594) EBITDA Gth (%) 6.3 21.3 15.6 13.7 Net Cash/(Debt) 16,555 19,732 22,396 26,979 Opg Profit Gth (%) 14.6 36.9 23.7 19.3 Effective Tax Rate (%) 29.3 28.5 28.5 28.5 Cash Flow Statement (RMB m) Key Assumptions

FY Dec 2019A 2020F 2021F 2022F FY Dec 2019

A

2020F 2021F 2022F

Pre-Tax Profit 2,727 3,422 3,891 4,518 Key Assumptions Dep. & Amort. 1,102 1,070 1,046 1,025 Sales volume growth (%) 0.2 (2.8) 4.2 2.3 Tax Paid (819) (798) (975) (1,109) ASP growth (%) 6.2 3.6 4.0 4.0 Assoc. & JV Inc/(loss) (21) (21) (21) (21) COGS per unit (RMB/Liter) 2.1 2.2 2.2 2.3 (Pft)/ Loss on disposal of FAs

FAFAsiaries/Investments (-/+)

248 0 0 0 Distribution & Selling cost as % of Sales 18.2 17.4 17.5 17.0 Chg in Wkg.Cap. 878 320 (374) 1,252 Admin cost as % of Sales 6.7 6.3 5.9 5.7 Other Operating CF (99) 198 187 142 Net Operating CF 4,017 4,191 3,753 5,806 Capital Exp.(net) (1,155) (275) (154) (154) Other Invts.(net) 807 224 0 0 Invts in Assoc. & JV 0 0 0 0 Div from Assoc & JV 0 0 0 0 Other Investing CF 0 0 0 0 Net Investing CF (348) (52) (154) (154) Div Paid (711) (743) (939) (1,073) Chg in Gross Debt 0 0 0 0 Capital Issues 0 0 0 0 Other Financing CF (58) 0 0 0 Net Financing CF (769) (743) (939) (1,073) Currency Adjustments 4 4 4 4 Chg in Cash 2,904 3,401 2,664 4,583

Source: Company, DBS HK

Page 8: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 8

DBS HK recommendations are based on an Absolute Total Return* Rating system, defined as follows:

STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame)

BUY (>15% total return over the next 12 months for small caps, >10% for large caps)

HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps)

FULLY VALUED (negative total return, i.e., > -10% over the next 12 months)

SELL (negative total return of > -20% over the next 3 months, with identifiable share price catalysts within this time frame)

*Share price appreciation + dividends

Completed Date: 10 Nov 2020 15:29:38 (HKT)

Dissemination Date: 10 Nov 2020 18:15:45 (HKT) Sources for all charts and tables are DBS HK unless otherwise specified. GENERAL DISCLOSURE/DISCLAIMER This report is prepared by DBS Bank (Hong Kong) Limited (“DBS HK”). This report is solely intended for the clients of DBS Bank Ltd., DBS HK, DBS

Vickers (Hong Kong) Limited (“DBSV HK”), and DBS Vickers Securities (Singapore) Pte Ltd. (“DBSVS”), its respective connected and associated

corporations and affiliates only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii)

redistributed without the prior written consent of DBS HK. The research set out in this report is based on information obtained from sources believed to be reliable, but we (which collectively refers to DBS

Bank Ltd., DBS HK, DBSV HK, DBSVS, its respective connected and associated corporations, affiliates and their respective directors, officers,

employees and agents (collectively, the “DBS Group”) have not conducted due diligence on any of the companies, verified any information or

sources or taken into account any other factors which we may consider to be relevant or appropriate in preparing the research. Accordingly, we

do not make any representation or warranty as to the accuracy, completeness or correctness of the research set out in this report. Opinions

expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained in this document

does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is

for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain

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(including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation

to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The DBS Group, along

with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document.

The DBS Group, may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform

broking, investment banking and other banking services for these companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can

be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments.

The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed, it may

not contain all material information concerning the company (or companies) referred to in this report and the DBS Group is under no obligation to

update the information in this report. This publication has not been reviewed or authorized by any regulatory authority in Singapore, Hong Kong or elsewhere. There is no planned

schedule or frequency for updating research publication relating to any issuer. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and

assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on

which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual

results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED

UPON as a representation and/or warranty by the DBS Group (and/or any persons associated with the aforesaid entities), that:

(a) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and

(b) there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk

assessments stated therein. Please contact the primary analyst for valuation methodologies and assumptions associated with the covered companies or price targets.

Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies)

mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the

commodity referred to in this report. DBS Vickers Securities (USA) Inc (“DBSVUSA”), a US-registered broker-dealer, does not have its own investment banking or research department,

has not participated in any public offering of securities as a manager or co-manager or in any other investment banking transaction in the past

twelve months and does not engage in market-making.

Page 9: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 9

ANALYST CERTIFICATION

The research analyst(s) primarily responsible for the content of this research report, in part or in whole, certifies that the views about the

companies and their securities expressed in this report accurately reflect his/her personal views. The analyst(s) also certifies that no part of his/her

compensation was, is, or will be, directly or indirectly, related to specific recommendations or views expressed in the report. The research analyst (s)

primarily responsible for the content of this research report, in part or in whole, certifies that he or his associate1 does not serve as an officer of

the issuer or the new listing applicant (which includes in the case of a real estate investment trust, an officer of the management company of the

real estate investment trust; and in the case of any other entity, an officer or its equivalent counterparty of the entity who is responsible for the

management of the issuer or the new listing applicant) and the research analyst(s) primarily responsible for the content of this research report or

his associate does not have financial interests2 in relation to an issuer or a new listing applicant that the analyst reviews. DBS Group has

procedures in place to eliminate, avoid and manage any potential conflicts of interests that may arise in connection with the production of

research reports. The research analyst(s) responsible for this report operates as part of a separate and independent team to the investment

banking function of the DBS Group and procedures are in place to ensure that confidential information held by either the research or investment

banking function is handled appropriately. There is no direct link of DBS Group's compensation to any specific investment banking function of the

DBS Group.

COMPANY-SPECIFIC / REGULATORY DISCLOSURES

1. DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in China Resources Beer

Holdings Co Ltd (291 HK) recommended in this report as of 04 Nov 2020.

DBS Bank Ltd, DBS HK, DBSVS or their subsidiaries and/or other affiliates have a proprietary position in Thai Beverage PCL (THBEV

SP) recommended in this report as of 30 Oct 2020.

2. Neither DBS Bank Ltd nor DBS HK market makes in equity securities of the issuer(s) or company(ies) mentioned in this Research

Report.

3. Compensation for investment banking services:

DBSVUSA does not have its own investment banking or research department, nor has it participated in any public offering of

securities as a manager or co-manager or in any other investment banking transaction in the past twelve months. Any US persons

wishing to obtain further information, including any clarification on disclosures in this disclaimer, or to effect a transaction in any

security discussed in this document should contact DBSVUSA exclusively.

4. Disclosure of previous investment recommendation produced:

DBS Bank Ltd, DBSVS, DBS HK, their subsidiaries and/or other affiliates of DBSVUSA may have published other investment

recommendations in respect of the same securities / instruments recommended in this research report during the preceding 12

months. Please contact the primary analyst listed in the first page of this report to view previous investment recommendations

published by DBS Bank Ltd, DBS HK, DBSVS, their subsidiaries and/or other affiliates of DBSVUSA in the preceding 12 months.

1 An associate is defined as (i) the spouse, or any minor child (natural or adopted) or minor step-child, of the analyst; (ii) the trustee of a trust of

which the analyst, his spouse, minor child (natural or adopted) or minor step-child, is a beneficiary or discretionary object; or (iii) another person

accustomed or obliged to act in accordance with the directions or instructions of the analyst.

2 Financial interest is defined as interests that are commonly known financial interest, such as investment in the securities in respect of an issuer or a

new listing applicant, or financial accommodation arrangement between the issuer or the new listing applicant and the firm or analysis. This term

does not include commercial lending conducted at arm's length, or investments in any collective investment scheme other than an issuer or new

listing applicant notwithstanding the fact that the scheme has investments in securities in respect of an issuer or a new listing applicant.

Page 10: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 10

RESTRICTIONS ON DISTRIBUTION

General This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or

located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be

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DBSVS and DBSV HK are exempted from the requirement to hold an Australian Financial Services Licence under the

Corporation Act 2001 (“CA”) in respect of financial services provided to the recipients. Both DBS Bank Ltd and DBSVS are

regulated by the Monetary Authority of Singapore under the laws of Singapore, and DBSV HK is regulated by the Hong

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Distribution of this report is intended only for “wholesale investors” within the meaning of the CA.

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of them may have positions in, and may effect transactions in the securities mentioned herein and may also perform or seek

to perform broking, investment banking/corporate advisory and other services for the subject companies. They may also

have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and

other services from the subject companies.

Wong Ming Tek, Executive Director, ADBSR

Singapore This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) or DBSVS (Company Regn No.

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entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial

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Investor or an Institutional Investor, DBS Bank Ltd accepts legal responsibility for the contents of the report to such persons

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Kingdom

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In respect of the United Kingdom, this report is solely intended for the clients of DBSVUK, its respective connected and

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relating to investments should not rely on this communication.

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International

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Centre

This research report is being distributed by DBS Bank Ltd., (DIFC Branch) having its office at units 608-610, 6th Floor, Gate

Precinct Building 5, PO Box 506538, Dubai International Financial Centre (DIFC), Dubai, United Arab Emirates. DBS Bank

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Page 11: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 11

United Arab

Emirates

This report is provided by DBS Bank Ltd (Company Regn. No. 196800306E) which is an Exempt Financial Adviser as defined

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Page 12: China / Hong Kong Industry Focus China Brewery Sector

Industry Focus

China Brewery Sector

Page 12

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DBS Bank (Hong Kong) Ltd

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e-mail: [email protected]

THAILAND

DBS Vickers Securities (Thailand) Co Ltd

Contact: Chanpen Sirithanarattanakul

989 Siam Piwat Tower Building,

9th, 14th-15th Floor

Rama 1 Road, Pathumwan,

Bangkok Thailand 10330

Tel. 66 2 857 7831

Fax: 66 2 658 1269

e-mail: [email protected]

Company Regn. No 0105539127012

Securities and Exchange Commission, Thailand