Hong Kong, Aug 20 - Tsingtao Brewery Co Ltd, China's best-known beer brand, posted a 42 percent rise in first-half profit on Wednesday on solid revenue growth even as it battles high raw material prices.
China's beer market -- the world's largest by volume -- is a fragmented industry of nearly 400 brewers.
Tsingtao, a domestic sponsor of the Beijing Olympics, faces stiff competition from foreign and domestic brewers including Heineken, Carlsberg, Kingway Brewery and the CR Snow joint venture between China Resources Enterprises and SAB Miller
The brewer, 27 percent-owned by U.S. beer maker Anheuser-Busch Cos Inc, said January-June net profit rose to 381.13 million yuan ($55.51 million) versus 268.66 million yuan a year earlier.
The result was less than half of analysts' estimated full-year profit forecast of 824 million yuan, according to the mean consensus of 12 analysts polled by Reuters Estimates.
Sales revenues rose 15.6 percent to 7.79 billion yuan, the brewer said. However, sales volumes only rose 5 percent to 26.86 million hectolitres.
"Facing the slow growth of market share, and hike of prices such as raw materials, packaging material, labor and energy, the company eased certain pressure brought by price hike through further organizational reform by adjusting the prices of some products of Tsingtao beer," the brewer said in a statement.
RAW MATERIALS
Profitability and pricing power is a challenge in China's beer industry, which produces less than $600 million in annual operating profit on 390 million hectolitres, or about 1.5 U.S. cents a litre, says Credit Suisse.
That compares to Miller's $477 million of profit in SABMiller's 2008 financial year on 48 million hectolitres, or nearly 10 cents a litre.
Tsingtao, which controls 10 percent of China's popular beer market -- trailing domestic leader CR Snow -- like many other brewers is slowly raising prices to combat soaring raw material and packaging costs.
The firm expects raw material costs will add about 1 billion yuan in additional costs this year, according to Merrill Lynch.
But on Wednesday, Merrill upgraded Tsingtao to buy from underperform after the interim results, and as raw material prices have eased in recent weeks.
Barley is down by 23 percent in the last month, but is still up 32 percent year-over-year in US dollar terms, Merrill said.
"We are turning more optimistic on the outlook for beer demand, as growth appears to be returning to normal in Q3," the bank said in a research note.
Tsingtao's Hong Kong-listed shares shed more than 39 percent in the first half of the year, underperforming the roughly 26 percent loss in the index of Chinese companies traded in Hong Kong.
The stock trades at about 17.6 times forecast earnings, cheaper than local rival Yanjing Brewery Co Ltd which trades at 26.2 times.