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China, Shanghai: Tsingtao Brewery, China's largest beer maker, said on June 16 it will buy a 50 % stake in Gansu Nongken Beer Co., a small brewery based in western China, for 60.5 million yuan ($7.3 million), according to The Associated Press. Tsingtao's purchase of part of Nongken, a six-year-old brewery based in the city of Lanzhou, is aimed at boosting its market share in the relatively undeveloped regional market of northwestern China, according to reports in the state-run media.

Nongken, maker of the Wuquan brand of beer, has an annual production capacity of 200,000 tons. It has been seeking outside investment to help improve its technology and competitiveness. “It's quite a small acquisition and [Gansu] is not a key market,” said Fan Cheuk-wan, deputy head of China research at ABN Amro. “This Gansu deal will have little impact on the M&A trend in the sector.”

Tsingtao, the maker of China's best-known beer abroad, owns 48 breweries in China. It has an alliance with Anheuser-Busch Co., the world's biggest brewer, which holds a 27 % stake in the 101-year-old Chinese company.

Tsingtao's acquisition of Nongken follows a recent announcement by Danish beer maker Carlsberg A/S that it has set up a 500 million yuan ($60.5 million) 50-50 joint venture with Lanzhou Huanghe Enterprise Co., also based in the city. That venture will have an annual capacity of 500,000 tons of beer.

Anheuser-Busch, SABMiller and Carlsberg are among dozens of foreign brewers stepping up expansions into the fast-growing Chinese market.

Fan said at US$11 (HK$85.8) per hectolitres, or slightly more than US$100 per tonne, the acquisition was cheap but the market was concerned about Nongken's profitability.

Furthermore, Gansu was a poor province with low beer consumption and low affordability, so Tsingtao needed to spend significantly on marketing to generate sales, she said. Analysts also highlighted the lack of information concerning the acquired brewer.

“We do not know the level of debts [of Gansu Nongken],” ING Financial Markets analyst Lilian Leung said. Tsingtao has a strong market presence in nearby Shaanxi province, with a plant in Xian. “The key reason why they acquired this plant is because of the location,” ABN Amro's Fan said.

According to Tsingtao, its sales in the northwestern region reached 500,000 tonnes last year. Fan figured this meant the northwestern market accounted for 15 per cent of Tsingtao's total sales volume last year. She said the purchase could help Tsingtao expand market share but investors would be concerned about Nongken's profitability, which was not disclosed, since Tsingtao's bottom line had already been hurt by unprofitable plants. “Tsingtao still has one-third of its existing 48 brewery plants making losses,'' Fan said. “They have no need to acquire additional loss-making plant.”

China's 1.3 billion people consume an average of 19 liters each of beer a year, compared with 39 liters in South Korea, 53 in Japan and 80 in Australia, according to the Australian brewer Lion Nathan. China was the biggest producer of beer in the world the past two years, surpassing the United States, the China Securities Journal reported on March 10. (AP, Bloomberg)

Beer Brewing, sales and relevant businesses are Tsingtao's main businesses. At present, there are 46 breweries and 3 malt factories distributed in 17 provinces in China. Tsingtao Beer is at the leading place among domestic beer industry, such as business scale and market shares. Tsingtao Beer is the most famous China brand in international market and popular in over forty countries and regions.


18 June, 2004