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Budweiser APAC sees sharp drop in Q3 profit over China, South Korea softness

Shares of Budweiser Brewing Co. APAC Ltd. fell more than 2% in mid-day trading Oct. 25 after the brewer posted a 23.5% third-quarter profit drop due to beer volume decline in its China and South Korea markets and one-time IPO charge.

The Asian unit of Anheuser-Busch InBev SA that went public in Hong Kong on Sept. 30 reported that profit attributable to equitable holders fell to $251 million, compared to $328 million in the prior-year period.

Profit excluding nonrecurring costs, including $50 million associated with the IPO, was $310 million the quarter ended Sept. 30, down 2.2% from $317 million a year ago. This translated to a normalized EPS of 2.34 cents, after exercise of an overallotment option, down from 2.39 cents in the year-ago period.

The brewer raised $5.75 billion in its Hong Kong IPO, its second attempt at listing following a shelved plan in July.

The company's key market where the brewer pinned its growth story during the IPO launch, China saw a 5.9% volume decline and a slight revenue decline in the third quarter. The brewer said shipment phasing in the second quarter and softness in the nightlife channel contributed to the slowdown, while its Budweiser brand was especially affected by softness in the nightlife channels.

Budweiser APAC CEO Jan Craps said during an earnings call the Budweiser brand will likely need some time to recover, and the slowdown will continue to eat into its numbers, but the brewer expects to expand into other channels such as restaurants and lower-tiered cities.

"[T]here are many, many provinces that Budweiser is not available today. When you go into tier 3, 4, 5 cities, you see a lot of expansion potential on geographic basis for the premium portfolio as we continue to expand in our premium strategy," Craps said.

He added that the super premium category with brands such as Corona and Blue Girl was showing double-digit growth, while the local production of Corona would support its margin expansion in the future.

"For margin expansion, premiumization in our view will be the key component in our margin expansion, combined with strict cost control," Craps said.

Meanwhile, the brewer said it experienced a difficult quarter in the South Korean market due to "challenging industry" and "competitive environment." The maker of the Cass beer, which is popular in South Korea, faces competition from local rivals like Hite.

According to the brewer, its price increase in April resulted in a significant price gap with its main competitors and put its brands at a competitive disadvantage. Budweiser Brewing decided to roll back the price increase in October.

India and Southeast Asia were the bright spots where the brewer saw strong volume growth in the first nine months of 2019.