1、 Disclosures&Disclaimer This report must be read with the disclosures and the analyst certifications in the Disclosure appendix,and with the Disclaimer,which forms part of it.Issuer of report:HSBC Securities(USA)Inc View HSBC Global Research at:https:/ THIS CONTENT MAY NOT BE DISTRIBUTED TO THE PEOP
2、LES REPUBLIC OF CHINA(THE PRC)(EXCLUDING SPECIAL ADMINISTRATIVE REGIONS OF HONG KONG AND MACAO)Our KO bottling models are adjusted for stronger retail pricing over the next couple of years across key markets Brazil macros may be weak,but all its beverage companies are showing top-line benefits from
3、stepped-up investments Arca is our preferred play on early evidence of a US franchise recovery;market pricing in zero recovery prospects Heineken has better long-term EM growth visibility:Heinekens new partnership with China Resources Beer(0291 HK,CMP HKD33.65,TP HKD29.92,Hold),completed in April 20
4、19,gives it 20.7%ownership of the biggest beer brand in the world and a superior platform for driving the Heineken brand.It also sets Heineken up well for further Chinese industry consolidation,margin improvement,and premiumization from the perch of an industry leader.The result of the arbitration r
5、elating to Heinekens proposed early termination of its distribution agreement with KOF in Brazil should be out any day.In our model,we assume the agreement is renewed,but believe Heineken is still likely to benefit from powerful brand growth nevertheless.Meanwhile,Mexicos Oxxo solution was not as pa
6、inful as it might have been(see Three deals for the price of one,27 Feb 2019),and the Africa outlook is constructive.We increase our DCF-driven TP to EUR102 from EUR80.Brazil needs immediate attention from Coke bottlers:Our scenario analysis suggests c30%upside for KOF from the current share price e
7、ven if the Heineken beer distribution deal is terminated in 2022;but we see c55%upside in our bull case where the deal is renewed and the portfolio expanded,or KOF puts in place an alternative strategy.In the meantime,Heineken continues to benefit from Coca-Cola FEMSAs strong execution capabilities
8、and distribution platform in Brazil.We think the Coca-Cola Company needs to define how its system will address evening(beer)occasions(see If the bottlers arent happy,12 Mar 2019 and ABI,KO,and Heineken:Who will get Brazil right?11 Feb 2019).We update our AC,Andina,FMX,KOF,Heineken and CCU models to
9、incorporate updated guidance and new macro forecasts.Despite the multiple earnings adjustments,we maintain all our ratings,reiterating Arca as our preferred play.Changes to Target Prices Current _TP_ _Rating_ Upside/Market cap _PE(x)_ _EV/EBITDA(x)_ Company Ticker Currency price Old New Old New down
10、side(USDm)2019e 2020e 2019e 2020e Arca Continental AC*MM MXN 105.56 155.00 155.00 Buy Buy 46.8%9,803 17.7 15.1 7.9 7.2 Coca-Cola Andina AKO/B US USD 19.85 32.00 30.00 Buy Buy 51.1%2,938 16.7 15.9 7.8 7.0 Coca-Cola FEMSA KOF US USD 64.39 92.00 92.00 Buy Buy 42.9%13,527 19.1 15.5 8.1 6.6 FEMSA FMX US
11、USD 98.10 111.00 120.00 Buy Buy 22.3%35,102 24.7 18.7 7.8 6.5 Heineken HEIA NA EUR 96.62 80.00 102.00 Hold Hold 5.6%62,046 24.6 22.9 11.4 10.6 CCU CCU US USD 26.44 24.00 24.00 Hold Hold-9.2%4,885 19.0 17.8 9.0 8.3 Source:HSBC estimates.Priced as of close at 23 May 2019 29 May 2019 Carlos Laboy Globa
12、l Beverage Head,LatAm Food Analyst HSBC Securities(USA)I+1 212 525 6972 Alessia Maria Apostolatos Analyst,Global Beverages and LatAm Food HSBC Securities(USA)I+1 212 525 7457 Alexis Cooper Analyst,Global Consumer,Beverages&Luxury HSBC Securities(USA)I+1 212 525 4394 Global Beverages Equities Beverag
13、es Global 1Q19:What is priced in now?2 Equities Beverages 29 May 2019 Comps analysis Company BBG Ticker Currency CP*TP Rating Market cap _PE(x)_ _EV/EBITDA(x)_ _EBITDA margin_ Net debt/EBITDA ROE _Dividend yield_ USDm 2019e 2020e 2019e 2020e 2019e 2020e 2019e 2019e 2019e 2020e LATAM Ambev ABEV3 BZ B
14、RL 17.2 19.0 Hold 67,088 22.5 19.2 11.8 10.4 41.7%42.8%-0.5 20.7%3.6%4.2%Arca Continental AC*MM MXN 105.6 155.0 Buy 9,803 17.7 15.1 7.9 7.2 18.4%19.3%1.1 9.2%2.2%3.3%CCU CCU CI USD 26.4 24.0 Hold 4,885 19.0 17.8 9.0 8.3 20.1%20.3%-0.1 13.9%1.3%1.4%Coca-Cola Andina ANDINAA CI USD 19.9 30.0 Buy 2,938
15、16.7 15.9 7.8 7.0 19.7%19.9%1.8 15.2%4.2%4.4%Coca-Cola FEMSA KOF US USD 64.4 92.0 Buy 13,527 19.1 15.5 8.1 6.6 19.5%19.8%1.3 10.6%2.9%3.2%FEMSA FMX US USD 98.1 120.0 Buy 35,102 24.7 18.7 7.8 6.5 14.9%15.4%0.2 7.9%4.4%5.8%Average 19.9 17.0 8.7 7.7 22.4%22.9%0.7 12.9%3.1%3.7%CEEMEA Anadolu Efes AEFES
16、TI TRY 18.1 25.0 Buy 1,754 31.1 16.3 6.5 5.6 16.5%16.7%1.0 3.1%2.6%3.1%Coca-Cola Icecek CCOLA TI TRY 25.2 43.0 Buy 1,048 10.4 7.3 4.0 3.4 17.4%17.3%1.2 10.7%4.8%6.9%Average 20.7 11.8 5.3 4.5 16.9%17.0%1.1 6.9%3.7%5.0%North America Constellation Brands STZ US USD 206.2 240.0 Buy 39,412 20.2 21.4 17.3
17、 15.5 36.8%38.7%4.0 16.4%1.4%1.4%The Coca-Cola Company KO US USD 49.9 50.0 Hold 212,666 23.7 22.5 19.4 17.9 33.4%34.2%2.9 49.5%2.4%2.5%Average 21.9 22.0 18.4 16.7 35.1%36.4%3.4 33.0%1.9%2.0%Europe Anheuser-Busch Inbev ABI BB EUR 73.7 100.0 Buy 165,911 15.5 15.5 11.8 10.9 41.4%41.8%4.2 15.7%3.1%3.1%H
18、eineken HEIA NA EUR 96.6 102.0 Hold 62,046 24.6 22.9 11.4 10.6 23.9%24.1%2.5 14.8%1.7%1.8%Average 20.0 19.2 11.6 10.8 32.6%33.0%3.3 15.3%2.4%2.4%Asia Beijing Yanjing Brewery 000729 CH CNY 7.0 6.03 Hold 2,861 na na 14.9 14.3 10.6%10.6%-1.2 0.6%0.5%0.5%China Resources Beer 291 HK HKD 33.7 29.92 Hold 1
19、3,910 66.7 43.1 23.0 17.6 12.2%14.6%0.2 7.3%-0.6%-0.9%Chongqing Brewery 600132 CH CNY 40.0 39.57 Buy 2,801 46.9 41.1 25.7 22.5 19.6%20.4%-0.4 34.9%2.0%2.0%Hitejinro 000080 KS KRW 20,750.0 24,000.0 Buy 1,228 25.1 24.3 8.5 8.1 12.7%12.6%2.9 5.1%3.9%3.9%Inner Mongolia Yili 600887 CH CNY 29.9 25.5 Hold
20、26,370 26.5 22.3 18.4 15.3 10.0%10.7%-1.0 23.5%2.5%3.0%Jiangsu Yanghe Brewery 002304 CH CNY 112.4 135.01 Buy 24,485 18.2 15.6 12.4 10.5 47.9%48.6%-0.2 26.0%3.3%3.8%Kweichow Moutai 600519 CH CNY 861.0 1,084.0 Buy 156,412 25.9 22.3 15.6 13.0 68.2%68.9%-2.0 33.6%2.0%2.3%Luzhou Lao Jiao 000568 CH CNY 70
21、.6 81.53 Buy 14,944 22.8 18.7 15.1 12.4 39.1%40.6%-1.3 25.1%2.9%3.5%Shanxi Xinghuacun 600809 CH CNY 55.8 62.85 Hold 7,030 25.4 20.4 15.1 12.3 26.0%26.1%-0.9 27.8%1.7%2.5%Sichuan Swellfun 600779 CH CNY 48.4 44.7 Hold 3,416 30.9 24.2 22.6 17.8 29.8%31.9%-0.8 39.0%3.1%4.0%Thai Beverage Public Co.THBEV
22、SP SGD 0.8 0.74 Hold 14,463 18.7 16.2 14.5 12.7 15.6%16.7%4.7 18.3%2.8%3.0%Tsingtao Brewery A 600600 CH CNY 48.9 40.98 Hold 4,925 50.2 41.5 7.2 6.2 11.3%12.1%-2.6 7.1%1.2%1.4%Tsingtao Brewery H 168 HK HKD 48.2 47.53 Buy 4,019 42.5 35.1 5.2 4.3 11.3%12.1%-2.6 7.1%1.4%1.6%Vitasoy 345 HK HKD 38.7 42.0
23、Hold 5,237 48.6 39.7 31.6 26.6 17.2%17.7%-0.7 25.1%1.3%1.7%Wuliangye Yibin 000858 CH CNY 99.8 97.6 Buy 56,038 23.1 19.1 14.7 11.8 46.7%47.9%-2.5 24.4%2.5%3.0%Yashili 1230 HK HKD 0.9 1.8 Buy 562 30.2 25.3 4.3 2.0 5.8%7.3%-14.9 2.2%0.0%0.0%Average 33.4 27.3 15.5 13.0 24.0%24.9%-1.5 19.2%1.9%2.2%Global
24、 average 27.7 22.9 13.3 11.3 24.6%25.3%-0.1 17.7%2.2%2.6%Source:Refinitiv Datastream,HSBC estimates.*Priced at close of 23 May 2019 We acknowledge the contribution of Sorabh Daga to this report.Sorabh Daga is employed by a non-US affiliate of HSBC Securities(USA)Inc.,and is not registered/qualified
25、pursuant to FINRA regulations.3 Equities Beverages 29 May 2019 Stock performance YTD Arcas stock price has fallen 4%YTD,but where the market prices in“show me”we find evidence that EBITDA margins should rise towards 18%from 13%in the US Andinas stock price has fallen 13%YTD as Argentine macros drag
26、on overall results Source:Bloomberg,priced as of 23 May 2019 Source:Bloomberg,priced as of 23 May 2019 KOFs stock price is up 6%YTD,but history teaches us that if the controlling shareholder wants out,retail pricing will improve,costs will be cut and dividends rise exiting control owners can outperf
27、orm FMX has appreciated 14%YTD,and the top question we get is,“Will it ever break USD100 per ADR?”.We argue that the retail trends,the Heineken performance and the KOF rebound should help Source:Bloomberg,priced as of 23 May 2019 Source:Bloomberg,priced as of 23 May 2019 Heineken is up 25%YTD as big
28、 markets like China,Brazil and Mexico gain clarity CCU is up 5%YTD,but Colombia could produce another bell-shaped performance Source:Bloomberg,priced as of 23 May 2019 Source:Bloomberg,priced as of 23 May 2019 104106108110112114116Jan-19Feb-19Mar-19Apr-19May-19Arca Continental(AC*MM,MXP)202122232425
29、Jan-19Feb-19Mar-19Apr-19May-19Coca-Cola Andina(AKO/B US,USD)58606264666870Jan-19Feb-19Mar-19Apr-19May-19Coca-Cola FEMSA(KOF US,USD)8587899193959799101Jan-19Feb-19Mar-19Apr-19May-19FEMSA(FMX US,USD)707580859095100Jan-19Feb-19Mar-19Apr-19May-19Heineken(HEIA NA,EUR)252627282930Jan-19Feb-19Mar-19Apr-19M
30、ay-19CCU(CCU US,USD)Equities Beverages 29 May 2019 4 Whats in this report?Arca Continental Increase pricing assumptions in Mexico and the US Reiterate our positive outlook on the US business Maintain Buy rating and TP of MXN155,implying 47%upside Coca-Cola Andina Adjust estimates on the weak macro e
31、nvironment in Argentina and the depreciation of the CLP against the BRL and PGY Argentina execution remains strong in spite of the macro environment;capacity expansion in Brazil helps Andina gain share Maintain Buy rating but cut TP from USD32 to USD30,implying 51%upside Coca-Cola FEMSA Higher prici
32、ng initiatives and strong execution drive higher revenue growth for the carb portfolio in the main KOF markets KOF continues to execute with its world-class digital platforms,helping it drive pricing power in its markets.Brazil is a critical market for KOF,and the beer issue continues to weigh Maint
33、ain TP of USD92 and our Buy rating;our TP implies 43%upside FEMSA Incorporate additional revenues into the Comercio division from the Oxxo beer agreement changes and the acquisition of Corporacin GPF in Ecuador Maintain our positive outlook on FEMSAs strategy and investment discipline as both Oxxo a
34、nd KOF bear fruit Increase TP to USD120 from USD111,implying 22%upside.Maintain Buy rating Heineken Opportunities for Heineken are present in Brazil,Mexico,and China,but solutions must be found in Brazil and the strategy itself may need to be optimized in order to fuel growth Incorporate changes to
35、volumes assumptions with updates on the FEMSA/Oxxo agreement and the deal with China Resources Beer Maintain Hold rating;increase TP to EUR102 from EUR80,implying 6%upside CCU Revise estimates on the weak Argentina macro environment,factor in higher pricing and lower volumes We see positive developm
36、ents in key markets but remain mindful of pricing in Chile and competitive pressures in Colombia;better opportunities than CCU in our sector,in our view Maintain Hold rating and TP of USD24,implying 9%downside 5 Equities Beverages 29 May 2019 Why Buy Arca Continental?Investment case Arca Continental
37、 operates in strong and stable markets like Mexico,has strong footprints in Peru,and its US opportunity seems outstanding.Texas was so poorly operated for decades that its high market share,strong demographics(favorable for soft drink growth)and scale were not yielding adequate growth or competitive
38、 profit margins for a market with this much potential.The key here is how fast Arca will drive price increases ahead of inflation.Last year pricing rose by more than 2x inflation,although this included mix effects.We expect more.As increased pricing has no increased variable cost attached to it(i.e.
39、no bottles to buy or cases to move),it can boost margins.We also expect Arca to increase the number of on-premise food service outlets it attends to directly(as we believe there is lots of poor third-party distribution to eliminate)and improve price-pack-channel segmentation.Its private next door ne
40、ighbor is smaller,and has fewer advantages,but still generates EBITDA margins in excess of 20%.Yet the Street seems to be in disbelief that Arca can ever break above 13%margins in the US.Our DCF model suggests the stock is fully valued at the current share price if we model 13%US EBITDA margins with
41、out any further improvement,which is what the Street appears to be doing.We model margins improving to 18%in three years.Higher pricing in the US and Mexico was the highlight of 1Q19 earnings 1Q19 earnings snapshot:Arca Continental reported 1Q19 revenue growth of 2.2%and EBITDA growth of 6%,as the m
42、argin expanded by 60bps to 17%,driven by the increase in pricing(which remained the highlight of the quarter).The average price per unit case excluding jug water increased 8.8%y-o-y in Mexico.We expect strong pricing to continue and model pricing growth ahead of inflation in the medium term.Manageme
43、nt guidance for FY 2019:The company expects the economic climate to neutralize in Argentina and Ecuador,and growth to be driven by Mexico,Peru,and the US.Argentina is expected to have flat volume growth in 2019,and Mexico is expected to have a positive 2019 despite the tough base in 2018.Arca Contin
44、ental(AC*MM)Stable LatAm markets should see stronger price per case growth as KO bottlers around the world use the price lever more aggressively in retail;nowhere will this help more than in Texas Top-line driven initiatives should help boost margins in Mexico too Our target price of MXN155 is uncha
45、nged,implying a 10.7x 2019e EV/EBITDA,and we maintain our Buy rating on the stock Equities Beverages 29 May 2019 6 For the US,the company expects volumes to increase in the second quarter and then stabilize for the rest of the year.The company is guiding for flat to 1%volume growth for the division
46、and pricing growth ahead of inflation.A new production facility in Houston,Texas,is scheduled to start operations in 1Q20.Management expects stable raw material prices.Polyethylene terephthalate(PET),resin and plastic packaging materials prices are expected to remain stable in dollar terms,and the c
47、ompany has a hedging policy in place for its aluminium and diesel requirements for the year in order to help margin expansion.Capex to remain in the range of c7-8%of sales.Our model assumptions for 2019:At a consolidated level,volume growth of 1.3%and pricing of 3.8%,resulting in revenue growth of 5
48、.2%.EBITDA margin expansion of c130bps to 18.6%,driven by increasing revenues and cost control measures.Increase in net interest expenses,driven by higher interest rates.Net income of MXN10.5bn and an EPS of MXN5.97 Changes to our estimates We update our earnings model to reflect 1Q19 results and in
49、corporate management guidance and the latest macro estimates from our economists(Latin American Economics Quarterly:Homework).Increase in pricing and cost control drive higher EPS _ 2019e _ _ 2020e_ 2021e MXNm New Old vs New Old vs New Revenue 167,139 165,948 0.7%175,106 174,468 0.4%184,324 Gross pr
50、ofit 74,992 74,588 0.5%79,315 78,556 1.0%84,076 Gross margin 44.9%44.9%-8 bps 45.3%45.0%27 bps 45.6%EBITDA 31,047 30,076 3.2%33,786 32,679 3.4%36,688 EBITDA margin 18.6%18.1%45 bps 19.3%18.7%56 bps 19.9%EBIT 22,265 21,787 2.2%24,682 23,928 3.2%27,137 EBIT margin 13.3%13.1%19 bps 14.1%13.7%38 bps 14.
