* Our view:

- Overall, management is cautiously optimistic about its H2 2024 prospects. Although SAB’s beer sales volume in July did not recover from the Q2 slowdown, management anticipates the launch of 333 Pilsner to support SAB’s sales volume in H2 2024. Besides that, the company's guidance of increased advertising & promotional (A&P) spending in H2 2024 vs H1 aligns with our expectation. As a result, we do not see significant risks to our 2024F forecasts.

- While competition has been intensifying, especially in the traditional off-trade channel, we believe that the prevailing market dynamics favoring the off-trade channel and mainstream products will enable SAB to navigate this competitive landscape.

* Guidance on H2 2024:

- SAB’s beer sales volume in July broadly aligned with the trend of overall beer production. Vietnam’s General Statistics Office reported that overall beer production volume declined 5% YoY in July 2024 (but flat MoM), indicating a sustained weak market from Q2.

- However, management expects that the launch of a new product (333 Pilsner) will support SAB’s performance in H2 2024, albeit at the cost of increased A&P spending. SAB guides for higher A&P spending in H2 2024 vs H1 as the company will spend on building a base of drinkers for this new product. Our forecasts imply A&P expenses/beer revenue at 10.4% in H2 2024 vs 7.7% in H1.

* New product variant: 333 Pilsner

- SAB has recently launched a new variant of the “333” brand called “333 Pilsner,” which has been well-received in the initial phase of entering the market, per management.

- By introducing this product variant, SAB targets to acquire a broader consumer base and capitalize on the growing preference for lighter, smoother tasting beer.

- Segmentation: This is a mass premium product priced at VND14,500 (USD0.57) per can of 330 milliliters (on a modern trade channel, per our research).

- Geographical coverage: Nationwide.

- Channel presence: Starting with the off-trade channel and then gradually penetrating the on-trade channel.

* Market dynamics:

- SAB maintains the number one position in Vietnam’s beer market in terms of sales volume on a moving annual total (MAT, i.e., last twelve months) basis despite facing slightly more intense competition in the traditional off-trade channel.

- Per management, on-trade channel sales have been decreasing steadily because of strict enforcement of Decree 100, while the traditional off-trade channel has improved. In addition, SAB’s sales volume via modern off-trade channels (including brick-and-mortar modern trade and e-commerce platforms) picked up YoY in H1 2024.

* Performance of associates in H1 2024:

- Crown Beverage Cans Saigon Limited (SAB’s 30%-stake associate producing and supplying aluminum cans for SAB and other alcohol and soft drink companies): The company has shifted from a production model to a trading model due to factory relocation (caused by the expiration of its factory’s land use rights), resulting in a lower margin.

- Saigon Binh Tay Beer Group JSC (Sabibeco, UPCoM: SBB, SAB’s 22%-stake associate): The company made a net loss of VND17bn in Q1 2024 (per SBB’s financial statements) and has yet to improve in Q2. Besides that, management expects to increase SAB’s stake in Sabibeco from 22.18% (at end-H1 2024) to above 50% in by end-2024.

- A joint venture supplying bottles did not perform well due to the market shift from bottles to cans.

* We currently have a BUY rating for SAB with a target price of VND71,000/share.

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