Chongqing Brewery's H1 revenue and profit both decline; investors question why Wusu lags behind Yanjing U8

Among China's five leading domestic beer companies, Chongqing Brewery (600132.SH) was the only one to report declines in both revenue and net profit during the first half of 2024.

On the afternoon of September 23, the company participated in the Chongqing-listed Companies Collective Investor Reception and Semi-Annual Performance Briefing.

Financial Performance

According to a review by International Financial News, Chongqing Brewery posted the following results for H1 2024:

• Revenue: 85.76 billion yuan, down 2.98% year-on-year
• Net profit attributable to shareholders: 7.96 billion yuan, down 7.98% year-on-year

Chin Wee Hua (Chen Weihao), the company's Vice President of Finance, attributed the decline to three main factors:

• Weakness in the on-premise consumption channel
• Slower-than-expected consumer recovery
• Adverse weather conditions

Internal Operational Concerns

Beyond external factors, investors focused on internal issues, including:

• Declining efficiency of advertising spending
• Pressure in the company's core Sichuan-Chongqing market
• Sluggish growth of key products

Pressure in the Sichuan-Chongqing "Home Base"

Chongqing Brewery divides its operations into three regions: Central, Northwest, and South. The Central region (Sichuan, Chongqing, and Guizhou) is the most critical market, contributing approximately 40% of total revenue.

In H1 2024, revenue from the Central region fell 7.48% year-on-year to 32.68 billion yuan, underperforming other regions and dragging down overall results. Deng Wei, the company's Board Secretary, cited "intensified competition" as a factor.

Industry insiders noted that competitors such as China Resources Beer, Tsingtao Brewery, and Yanjing Beer have been increasing their presence in Southwest China in recent years, squeezing Chongqing Brewery's mainstream products.

Regional Performance Breakdown

| Region | Revenue Change (H1 2024) | |--------|--------------------------| | Central | -7.48% | | South | -0.27% | | Northwest | +0.68% |

When asked about national expansion plans, management stated they would focus on new growth opportunities, expand into modern trade and e-commerce channels, and develop instant retail channels.

Rising Sales Costs

Chongqing Brewery's sales expenses rose 5.23% year-on-year to 14.03 billion yuan in H1 2024. Within this, advertising and marketing expenses reached 7.03 billion yuan, up 9.7% year-on-year.

However, this increased spending did not translate into effective sales volume, pushing the sales expense ratio (sales expenses / revenue) to 16.4% — the highest among the five domestic beer companies.

In response to a question from International Financial News at the briefing, management said the company would work to keep marketing expenses at a reasonable level going forward.

Wusu Growth Questioned Against Yanjing U8

Investors pressed management on why Wusu — one of Chongqing Brewery's most nationally recognized brands — has seen significantly slower growth compared to Yanjing U8 in recent years.

Key questions raised included:

• What is causing Wusu's slower growth?
• What measures can restore Wusu's growth trajectory?
• When will the company's second-largest SKU catch up to competitors like U8 in national sales?

Red Wusu, which carries the company's premiumization ambitions, has seen its growth momentum fade. By contrast, Yanjing U8 — a core product of Yanjing Beer — has grown from 100,000 kiloliters to approximately 900,000 kiloliters in sales volume over the past five years. As U8 surged, Yanjing Beer overtook Chongqing Brewery in total revenue in 2024.

Management did not directly answer the questions but instead listed Wusu's marketing initiatives in H1, including:

• Launching an 8.88L mega-pack with brand ambassadors
• Organizing various promotional campaigns
• Sponsoring the "Xinjiang Super League"

Product Structure Shifting Downward

Relying solely on marketing appears insufficient to sustain Chongqing Brewery's premiumization and national expansion goals.

In H1 2024, the company's product performance by tier was:

| Product Tier | Revenue Change (H1 2024) | |--------------|--------------------------| | High-end | -1.53% | | Mainstream | -5.69% | | Economy | +3.17% |

This indicates a downward shift in product mix.

Seeking New Growth Drivers

As traditional beer product growth slows, Chongqing Brewery is accelerating efforts to find new growth areas.

According to its financial report, the company launched 49 new products in H1 2024, covering:

• 1L craft beer
• Low-alcohol and non-alcoholic beer
• Specialty flavored beer
• Non-beer categories such as energy drinks and fruit juices

The financial report has not yet disclosed the sales volume or profit contribution of these new products.

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