Insights

Budweiser Asia Earnings: No Dividend But Brighter Outlook

Here’s why shares of Budweiser Brewing Co APAC (SEHK: 1876) have rallied despite a poor first half amid the coronavirus outbreak. – Beer pint being poured Budweiser APAC

Shares of Budweiser Brewing Co APAC (SEHK: 1876), otherwise known as Budweiser Asia, have rebounded from their early April lows.

As of 3 August, Budweiser Asia’s stock is higher than where it was at the beginning of the year. Given that the beer giant recently reported its first-half results, was the report bullish or bearish for investors?

Here’s what they should know about Budweiser Asia’s latest earnings.

First-half results

For the first half of 2020, Budweiser Asia’s sales fell 23.5% year-on-year, total volumes fell 22.2% year-on-year, and normalised EBITDA declined 40.6% year-on-year.

Adjusted EPS for the first half of 2020 was 1.68 US cents, down from 4.92 US cents in the first half of 2019.

As a result of the profit decline, Budweiser Asia’s board didn’t propose or declare a dividend for the first half of 2020.

Market anticipates demand rebounding

Although Budweiser Asia’s results were pretty bad and the company didn’t declare a dividend for the six months ended 30 June, the good news is that the numbers reflect the past.

Given that the market is forward-looking, the market isn’t as concerned about the past and the bullishness in the stock suggests a potential recovery in Budweiser Asia’s future.

There is reason to be optimistic. First, there are some indications that demand could rebound rather quickly once certain conditions are met.

Since China was the first big country to contain the coronavirus outbreak, recovery of demand in the country could be somewhat correlated with time for recovery of demand outside the country as well.

If demand in China recovers rather quickly after Covid-19 is contained, demand in other countries outside of China could also recover quickly once the coronavirus there is contained.

As Budweiser Asia’s first-half results show, demand for China has indeed quickly recovered for the most part.

Budweiser Asia writes of its second-quarter volume improvement versus first-quarter volume that:

“Total volumes decreased by 22.2% in the first half of 2020 (1H20) and 6.1% in the second quarter of 2020 (2Q20) year-on-year.  

The improvement in 2Q20 was primarily driven by a strong recovery in China to almost the same level as last year, including the highest monthly volume in our China history in June 2020.”

If demand in other countries follow China’s lead when they successfully contain the coronavirus outbreak, business could return closer to normal for Budweiser Asia rather quickly. Then the company could potentially declare dividends once that happens.

In terms of containing the coronavirus, many analysts are pretty bullish on the development of a potential vaccine. In fact, many in the industry think a vaccine candidate could hit the market sometime this year.

Although it will still take some time for countries to manufacture and distribute a vaccine, the odds of returning to normal will nevertheless vastly increase.

Foolish conclusion

Budweiser Asia’s first-half performance was worse than the comparable period last year due to the coronavirus outbreak.

Although Covid-19 is still ongoing, there is reason to be bullish given the quick speed of recovery in Budweiser Asia’s China demand.

Once things return to normal, the secular trend of rising incomes, which could lead to rising demand for premium beer, is a long-term reason to be bullish on the stock.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Jay Yao doesn’t own shares in any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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