![#](https://e-malt.com/Images/left_top_corner16x200.gif) | E-Malt.com News article: China: China’s brewers struggle with higher input costs and dip in sales squeezing their margins![Brewery news](https://e-malt.com/Images/BeerBullet2.gif)
China's leading brewers face mounting challenges as they attempt to expand market share while their margins are squeezed by higher input costs and a recent dip in sales, XFN-ASIA quoted Goldman Sachs on July 30.
Goldman Sachs announced it had downgraded Tsingtao's Hong Kong shares to "neutral" from "buy" and its A-shares to "sell" from "neutral" due to likely weak second quarter results and a more challenging competitive landscape.
The brokerage cut its Tsingtao H-share target price to 20 hkd from 27 hkd, and its A-share target to 12.5 yuan from 28.5 yuan.
On July 29, Tsingtao's H-shares were reported to close at 17.1 in Hong Kong, while in the morning of July 30 its A-shares were up 0.04 pct at 24.1 yuan in Shanghai.
Meanwhile, Yanjing Brewery remains "neutral," but its price target has been cut to 17.1 yuan from 18 yuan. The brewer's shares were up 0.96 pct at 16.76 yuan July 30 in the morning.
Goldman Sachs explained the changes in China’s competitive landscape by the merger of InBev and Anheuser-Busch, which will become the country's number two player with significant exposure to both the premium and mass markets.
However, as the integration InBev and A-B will take some time, the immediate impact is believed to be minimal.
Still, Chinese brewers are facing margin pressure due to higher barley costs. Most companies have managed to offset rising costs by lifting average selling prices, promoting light beer sales and switching to cheaper domestic barley, but brewers will still see a dip in gross margin this year.
Greater barley supply will lessen margin pressure in 2009. Volume growth in China's beer industry should recover in the third quarter after struggling in the April-June period, with the Olympics positive for beer consumption, Goldman Sachs expressed strong confidence.
31 July, 2008
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