Tsingtao snaps up brewery

SHANGHAI: Tsingtao Brewery, one of China's largest beer makers, will buy Carlsberg Hong Kong's remaining 25 percent stake in Tsingtao Beer Shanghai Songjiang Co for 51.25 million yuan.

After the purchase, the Qingdao-based brewer will own the entire equity interest of the Shanghai company. Tsingtao bought a 75 percent stake in the subsidiary from Carlsberg in 2000.

The latest acquisition was "proposed by Carlsberg, and we agreed because we wanted to consolidate our autonomy in managing the company", a Tsingtao executive identified as Wang said.

"The price for the deal is quite cheap given the subsidiary's net assets of 438 million yuan in 2007," said Shi Jiangang, an analyst at TX Investment Consulting Co Ltd.

The price for the 25 percent stake was agreed in 2000 when the Danish brewer sold 75 percent of then Carlsberg Brewery Ltd to Tsingtao for $19 million.

Through the previous purchase, Tsingtao successfully filled its market vacancy in Shanghai.

"Unlike other beer markets, foreign brands like Japanese Suntory and Singaporean Reeb Beer are the dominant players in the market," Shi said, adding that the acquisition is an extension of its 2000 purchase that will help Tsingtao boost its market share in the region.

The Shanghai subsidiary mainly brews beer for China's eastern region.

Analysts said Carlsberg's move to sell the stake could be partly because it is losing market share to local brewers.

"Carlsberg's weak performance in retail dragged down its total achievements in the country, where it has only a 1.3 percent market share, down 0.1 of a percentage point from 2006," Huang Qiong, an analyst at Euromonitor International, said.

Domestic products, in contrast, accounted for over 99 percent of total volume sales in China last year, when Tsingtao had a 13 percent market share following China Resources Enterprises Co Ltd, the second largest brewer in China, according to Euromonitor figures.

Tsingtao posted a net profit of 560 million yuan last year, up 27.7 percent from 2006.

"Middle and high-end beers are Tsingtao's main products, so it's good news and in line with the market trend," Shi said.

Local consumers are taking to premium beer brands such as Tsingtao Premium and Heineken, Euromonitor said. But "the average profit for beer in China is less than 100 yuan per ton, which is very low for brewers. As a result, the leading manufacturers are increasingly focused on developing high-end products to boost profits."

The Shanghai plant posted a net profit of 16.79 million yuan in 2007, up 30 percent from a year earlier, according to Tsingtao's statement to the Shanghai Stock Exchange.

Tsingtao's A shares slid 0.77 percent to close at 16.81 yuan yesterday.

"Through the transaction, Carlsberg can continuously focus its resources to develop its rapidly growing Carlsberg brand as well as other major beer business within China," the company said in a statement.

Source: China Daily