E-Malt.com News article: 1860

Chinese beer maker, Guangdong Brewery Holdings Ltd., announced on November 26 it was in talks to sell a stake to one of the world's five largest brewing groups, accelerating consolidation in the world's biggest beer market by volume. However Guangdong didn’t identify the buyer. The potential sale of a 21 % stake highlights the appetite of foreign beer giants to buy a toehold in the fragmented but fast-growing Chinese market, Reuters said. Guangdong Brewery Holdings has a market capitalisation of US$314 million and does not rank among the top 10 Chinese beermakers, although it boasts a 16 % market share in its home province of Guangdong, one of China's wealthiest, where its flagship Kingway brand is popular. "The M&A game is the trend in China's beer sector, but the competition is getting fierce," said Nomura International analyst Phoebe Wong. "There are fewer breweries to pick from now. Most of the top five have foreign partners already," she said.

Shares in Guangdong Brewery, which could not be reached for additional comment, surged 7.69 % to close the morning session at HK$1.96. The stock has quadrupled this year amid a broad rally by Chinese domestic consumption related stocks. Guangdong Brewery said in a statement that it and its parent firm GDH had agreed with a company from "one of the world's top five international brewery groups by sales" to talk about various strategic investments. It did not identify the international brewer. Market sources said potential buyers include Dutch brewer Heineken NV, Denmark's Carlsburg A/S and U.S.-based Anheuser-Busch Cos Inc, the world's largest.

China's largest beermaker is Tsingtao Brewery, which has grown its market share to about 14 % through an acquisition spree.

Anheuser-Busch this year doubled its stake in Tsingtao to 9.9 % and plans to increase that to 27 % in seven years as part of an expected further consolidation of the industry. One industry source said Anheuser-Busch together with Tsingtao could be a potential buyer of Guangdong Brewery, partly because it is Tsingtao's chief competitor in the southern boomtown of Shenzhen, with a 65 % market share in the city bordering Hong Kong.

Earlier this year, the world's second-largest beer maker SABMiller bought a nearly 30 % stake in China's fourth-largest beer maker, Harbin Brewery Group Ltd , for US$87 million. SABMiller also has a joint venture with China's second-largest brewer CR Breweries.

World No. 3 Interbrew paid $19.5 million in 2002 for a 24 % stake in Zhujiang, China's number five brewery.

Beijing-based Yanjing Brewery, China's No. 3 beer maker, is the biggest Chinese brewer without a foreign partner.

Both SABMiller and Interbrew's management told ABN Amro that they are not in talks with Guangdong Brewery, Fan Cheuk Wan, an ABN analyst, told Reuters.

Roughly 500 Chinese brewers produce 237 million hectolitres of beer a year, or about 18 litres per person. That compares with 50 litres in Japan, 84 in the United States and 100 in Europe, and is expected to rise as China's economy grows in excess of eight percent a year, boosting disposable incomes.

Guangdong Brewery sold about 224,000 litres of beer last year. It said talks with a potential investor were proceeding on the basis that the buyer will pay HK$1.85 per share in cash for a combination of existing shares and new shares worth 21 percent of the enlarged issued share capital of the firm. The proposed price of HK$1.85 per share, or about 21 times 2004 consensus forecast earnings, is in line with the recent acquisition valuations of the industry in China.


01 December, 2003