CICC released a research report maintaining its core net profit forecasts for CHINA RES BEER (00291) at RMB 5.31 billion and RMB 5.75 billion for 2025 and 2026 respectively. The firm maintains its target price of HK$32.4, with current stock price corresponding to 15.7x/14.6x core P/E for 25/26, while the target price implies 18x/17x core P/E for 25/26. The target price offers 15% upside potential from current levels, and CICC maintains its outperform rating.

**1H25 Beer Performance Slightly Exceeds Expectations**

The company announced 1H25 results: revenue of RMB 23.94 billion, up 0.8% year-on-year, with core EBIT of RMB 7.11 billion, up 11.3% year-on-year. Beer revenue reached RMB 23.16 billion, up 2.6% year-on-year, with sales volume up 2.2% and average selling price (ASP) up 0.4%. Beer core EBIT was RMB 7.28 billion, up 14.0% year-on-year. Baijiu revenue was RMB 781 million, down 33.9% year-on-year, with EBITDA of RMB 220 million, down 47.2% year-on-year.

The beer business slightly exceeded expectations, primarily due to improved gross margins and reduced selling expenses driving better-than-expected profit performance.

**Beer Business Outperforms Industry Average, Premium Trend Continues**

1H25 sales volume increased 2.2% year-on-year, with price per ton up 0.4%. Benefiting from lower raw material costs, cost per ton decreased 4.2% year-on-year, driving gross margin up 2.5 percentage points to 48.3%. Selling expense ratio decreased 1 percentage point year-on-year, leading to 1H25 core EBIT growth of 14%, exceeding market expectations.

By product category: Heineken sales volume grew about 20% year-on-year in the first half, while sub-premium and above products achieved mid-to-high single-digit volume growth. By channel: On-premise channels remained relatively pressured in the first half, while off-premise channels captured some demand shifting from dining-out to home consumption. Meanwhile, channels like Waimai showed rapid growth. Online business and instant retail business GMV grew 40% and 50% respectively year-on-year, though their contribution remains small. The company stated it will closely monitor and engage with incremental opportunities in off-premise channels to capture changing consumer demands.

**Baijiu Business Under Pressure, Slightly Exceeding Market Expectations**

1H25 revenue declined 34% year-on-year, with EBITDA of RMB 218 million, down 47.2% year-on-year. The main brand (accounting for 80%+ of revenue) primarily serves government and business banquet scenarios, which were significantly impacted in the first half. The company indicated that in the second half, it will focus on preserving existing volume while capturing incremental growth, launching products in the RMB 100-300 price range to strengthen the Jinsha Huisha brand, leveraging beer-baijiu integration advantages, restructuring the pricing system to ensure channel profitability, and expanding online and other businesses.

**Outlook**

Looking ahead, the company's beer business performance is expected to maintain relatively steady momentum in the second half. CICC believes both sales volume and price per ton will maintain low growth throughout the year. Combined with mid-single-digit declines in cost per ton for the full year, this should drive gross margin improvement of over 1 percentage point. Under the "three excellence" strategy, selling expense ratio is expected to continue declining, with CICC forecasting full-year profit margin to maintain double-digit growth.

For the baijiu business, the industry is expected to gradually begin releasing accumulated financial statement pressure in the second half, progressively entering a clearing and convergence phase. The company's baijiu business has the potential to adjust in sync with the industry. CICC believes this adjustment will lay the foundation for the subsequent healthy development of the baijiu business, positioning it as the company's second growth curve.

**Risk Factors:** Intensified competition, excessive promotions, poor sell-through, raw material costs not declining as expected, food safety issues.