GLOBALBEVERAGESSOFTDRINKS1102

1、october 23, 2012global: beverages: soft drinkssecurities research reportbattle of the brands heating up in the china soda market?soda volume slowing in chinacoke reported volume growth of +2% in china in 3q12, a slowdown fromthe high-single-digit to double-digit growth we have been seeing for thepas

2、t several quarters. pepsis beverage volume was down low-single-digitsin china (excluding the new co-branded juice products), but managementnoted a sequential improvement and +15% csd volume gain in september(not captured in peps 3q12 results). the latest nielsen csd data fromchina covering july/augu

3、st also show a -1% csd volume decline and salesgrowth of +5.8%, a moderation from high-single-digit to double-digitgrowth seen for most of 2011.competition from tingyi/pepsi heating up in the near termwe heard diverging commentary from ko and pep around the near-termoutlook in china; ko expects to s

4、ee the soft trend continuing over the nextsix months while pep was dismissive of a slowdown in china and soundedoptimistic about its near-term trends. we believe some of this is in partdriven by lower pricing by the tingyi/pepsi alliance, as it increased its500ml pet bottle size to 600ml without any

5、 price change. it appears ko hasyet to follow, which could put some volume pressure on kos csdportfolio in the near term. in addition, pep should begin to benefit fromincreased distribution as it leverages tingyis manufacturing anddistribution footprint.buy china foods on margin improvement; neutral

6、 on ko, pep andtingyiwe are buy-rated on china foods. while kos 2% volume growth in 3q12illustrates a tough operating backdrop, we see china foods growthoutperforming that of ko due to its exposure to faster-growing north/westchina as well as potential for margin expansion. we are neutral on tingyia

7、nd view the read-across from pepsis comment as a positive. we areneutral on ko and pep; for ko, we see limited fundamental upside given achoppy global macro backdrop, and for pep we remain concerned aboutmarket share losses across its core beverage and snack portfolios in theus.judy e. hong(212) 902

8、-0490 goldman, sachs & co.lisa deng+852-2978-0528 goldman sachs (asia) l.l.c.michael luddy(212) 902-9592 goldman, sachs & co.xiaochun ni+852-2978-6603 goldman sachs (asia) l.l.c.the goldman sachs group, inc.goldman sachs does and seeks to do business withcompanies covered in its research rep

9、orts. as a result,investors should be aware that the firm may have a conflict ofinterest that could affect the objectivity of this report. investorsshould consider this report as only a single factor in makingtheir investment decision. for reg ac certification and otherimportant disclosures, see the

10、 disclosure appendix, or go analysts employed by non-us affiliates are not registered/qualified as research analystswith finra in the u.s.global investment research2october 23, 2012global: beverages: soft drinksko and pep commentary on china diverge in 3q12china has become an increasingly controvers

11、ial market for the coca-cola company(ko, neutral) and pepsico (pep, neutral) on concern over a macro slowdown andpotential for increased competition on the heels of the tingyi/pepsi alliance that hasnow been completed. the latest nielsen data from china covering july and augustalso confirms continue

12、d sequential deceleration in carbonated beverage sales, but wehave yet to see a marked shift in competitive dynamics in this data. we favor chinafoods as our current top pick levered to the chinese beverage market and remainneutral-rated on ko, pep and tingyi.much attention has been given to china d

13、uring both ko and peps 3q12 earnings last weekdue to the broader macroeconomic concerns and the slowdown in reported beveragevolume growth. between the two, weve heard differing assessments of the issue with koblaming slower overall consumption and more competitive pricing from pep (upsizing to600ml

14、 from 500ml pet bottles), while pep claims to see few signs of a slowdown and justbelieves its portfolio is in a transition period as it moves to tingyi. the reality is likely a mixof these claims.kos china volume growth slows to 2% in 3q12 this is a sizable decelerationfrom the high-single-digit to

15、 double-digit growth we have been seeing from chinafor the past several quarters. this was flanked by flat growth in csds and 5%growth in still. ko indicated that it expects soft trends in china to continue for thenext six months.pep indicates it is seeing sequential volume acceleration in china at

16、thesame time, pep delivered a low-single-digit decline (excluding rebranding of juiceinto tropicana), but volumes accelerated every month from june under newmanagement by tingyi and september csd volumes grew 15% yoy (not capturedin peps 3q12 results). volume of new co-branded juice further contribu

17、ted to 7ppof peps china volume growth in 3q12.besides a macro slow-down and intensifying competition, we expect that slower growth ofcsds in 3q12 can be further explained by: (1) cooler and wetter weather in july andaugust (peak season in china), as shown in exhibits 1 and 2; and (2) shifting consum

18、ertaste preferences into more recently launched categories of traditional juice drinks, milk tea.in the 12 months ending july 2012, asian traditional drink grew around 34% and packagedwater around 15% while ready-to-drink tea grew about 7% and carbonated softdrinksabout 7.5%. our recent conversation

19、 with industry players confirm that these trends havecontinued into 3q12.goldman sachs global investment research3october 23, 2012exhibit 1: the weather was cooler year over year in 3q12,but is about consistent with last year in septemberyoy change in temperature (degrees celsius)yoychgintemperature

20、(degreescelcius)8.06.0global: beverages: soft drinksexhibit 2: rainfall was also high in 3q12, but abatedthrough the quarterchange in total rainfall for the month (mm/month)chgintotalrainfallforthemonth(mm/mth)6,0004,0004.02,0002.0(2,000)(2.0)(4.0)(6.0)source: bloomberg.(4,000)(6,000)source: bloombe

21、rg.sales decelerating modestly in 2012 in nielsen china csd datacsd sales growth has been more modest in 2012 according to nielsen, carbonatedsoftdrinks (csds) accounted for about 26% of the total china beverages market in 1h12,second only to bottled water. category sales growth has slowed somewhat

22、to +6% in thelast four months vs. closer to +8% in 2011, with july/august volume still hovering in thenegative territory.market share still favors ko but we believe this is likely to change in the comingmonths meanwhile, the data shows that market share is still moving in favor of ko,though the rate

23、 of share gains appears to be moderating. given peps comment that itsvolume was up 15% in september, combined with kos cautious commentary on near-term trends, we believe ko is likely to face challenges over the next six months as thetingyi alliance focuses on volume gains and pricing measures heat

24、up.is tingyi/pepsi alliance a game-changer? ko has developed a strong foothold in thechina market due to its consistent investment, strong brand equity, and peps inability toexpand its distribution in rural markets. over time, the tingyi/pepsi alliance should allowpep to see the benefits of improved

25、 distribution going forward with pep leveragingtingyis current portfolio of approximately 50 beverage plants (vs. peps 20) to gainexposure into much wider markets in china than peps current presence.the data can be distortive given the strategy in china given the very low per-capitaconsumption level

26、s in china vs. the us, for example, the key for ko and pep has been todrive transactions. ko, in particular, has focused on maximizing the consumer interactionwith the brand as much as possible, leading to the introduction of 300ml packaging as wellas the downsizing of the 600ml to the 500ml. its fo

27、r this reason the volumes in the chinanielsen data has in part been subdued, along with why the price/mix has been high (thedownsizing of the 600ml to the 500ml was not accompanied by a reduction in price). koplaces more emphasis on growth in transactions (+7% yoy in 3q12) as it provides a betterind

28、ication of customer interaction.goldman sachs global investment research4october 23, 2012exhibit 3: industry csd sales figures have been strong,but less impressive than in 2011; sales were up 5.8% inthe most recent periodindustry sales, volume, price change20.0%15.0%10.0%5.0%global: beverages: soft

29、drinksexhibit 4: ko continues to gain share, but the trendshave been more positive for pep in 2012 than 2011sales share change (pp)2001501005000.0%ma11mj11 ja11so11nd11jf12ma12mj12ja1250ma11mj11 ja11so11nd11jf12ma12mj12ja125.0%10.0%15.0%100150200salesvolumepricekopepsource: the nielsen company, gold

30、man sachs research.exhibit 5: ko csd trends have been broadly in line, withvolume change turning positive as price increases havemitigated slightly, likely because they are starting to lapthe downsizing from last yearko sales, volume, price change20.0%15.0%10.0%5.0%source: the nielsen company, goldm

31、an sachs research.exhibit 6: pep china trends have largely been in line withthe industry, but with less robust sales figurespep sales, volume, price change20.0%15.0%10.0%5.0%0.0%0.0%ma11mj11 ja11so11nd11jf12ma12mj12ja125.0%ma11mj11 ja11so11nd11jf12ma12mj12ja125.0%10.0%15.0%10.0%15.0%20.0%salesvolume

32、pricesalesvolumepricesource: the nielsen company, goldman sachs research.goldman sachs global investment researchsource: the nielsen company, goldman sachs research.5october 23, 2012exhibit 7: industry sales shares have remained fairlysteady; sprite remains the dominant player, whilemirinda steadily

33、 gainssales share change30.0%25.0%20.0%15.0%10.0%5.0%0.0%global: beverages: soft drinksexhibit 8: ko has the two largest brands by volume inchina sprite and coca-colavolume share ja 1235.0%30.0%25.0%20.0%15.0%10.0%5.0%0.0%cocacolaspritemirinda(pep)pespicolaspritecocacolapepsicolamirinda(pep)fantaora

34、nge7upsource: the nielsen company, goldman sachs research.source: the nielsen company, goldman sachs research.further on-the-ground color on tingyi-pepsico alliancesince the completion of tingyis strategic alliance with pepsico on march 31, 2012, tingyihas maintained an optimistic outlook to quickly

35、 turn the previously loss-making pepsicobusiness back to breakeven by 2013 and profitable starting in 2014. in the companys aprilanalyst/investor day, ceo wei ing-chou outlined the companys strategic objectives for thealliance. these are:13% sales cagr to 2015, 1pp csd market share gain per year; an

36、dapproach normalized npat margin of approximately 8% driven by betterconcentrate price (2-3pp margin improvement) and better marketing expensesupport from pepsi.we expect that tingyi is on-track to delivering its goal of breakeven in 2013e as salesmomentum and margins should both improve on the back

37、 of increased market investment,improved production and distribution efficiency, and still-low raw material prices.in 2012/2013, we forecast tingyis china revenues of us$1.59bn/us$1.75bn and npat(recurring, post adjustment for minority interest) of us$9mn loss/us$0mn, respectively.based on disclosur

38、es by tingyi in 1h12, we estimate that pepsi china generatedus$820mn of total revenues and immaterial loss to the companys net profits. 2h12 lossesare likely to narrow further as raw material prices continue to fall in tingyis favor and thecompany begins to reinvest cost savings to drive sales.goldm

39、an sachs global investment research8,0006october 23, 2012exhibit 9: tingyi is stepping up market investments withcost savings from lower raw material costspet prices are down about 20% yoy in 3q12.brent crude oil (us$/bbl, rhs)proxy for pet (70% pta + 30% meg, us$/mt, lhs)global: beverages: soft dri

40、nksexhibit 10: tingyi is stepping up market investmentswith cost savings from lower raw material costs.sugar prices also are down about 23% yoy in 3q12(rmb/ton)160016014001407,00012001000800600400200120100806040206,0005,0004,0003,0002,000sept: rmb5,740/ton,-22% yoy0source: datastream.0source: wind.i

41、n late september 2012, tingyi re-launched the 600ml pet bottle to the market. this skuwas originally downsized to 500ml in 2h11 in order to protect margin in the face of risingraw materials. however, given lower raw material prices, tingyi has decided to return to a600ml sku to drive sales. our supe

42、rmarket channel checks in shanghai indicate that bothof pepsis 500ml and 600ml skus are still available in local supermarkets, and retailed atrmb3.00/bottle, while coca-cola has not re-introduced its 600ml pet bottle, retailing its500ml pet bottles for rmb2.9/bottle. pepsis upsize is equivalent to a

43、n approximate 17%price discount, and as we head into 4q12 we would expect pepsis volume growth toaccelerate (already seeing 15% growth in september), while overall sales growth is likely tobe offset by negative price.read-through for tingyi and china foodstingyi (neutral, hk$23.70/share): positive r

44、ead-across, on track to pepsicobreakeven in 2013epeps confident stance into 2013e provides positive read-through for tingyis progress toturn pepsico back to breakeven next year. while we have not seen a pick-up in nielsencsd market share through august 2012, september data will be interesting as tin

45、gyi re-launches the 600ml pet bottles, while coca-cola held onto its 500ml bottles. while pepnotes that september csd sales are already up 15% yoy, we expect this to be partiallyoffset by negative price, although margins should remain insulated given an approximate20% fall in pet and sugar prices.ch

46、ina foods (buy, hk$8.60/share): cautious on beverage volumes but marginstory remains intactkos 2% volume growth in 3q12 (0% csd, 5% non-carbonated) illustrates a toughoperating environment for its chinese bottlers, including china foods. however, we notethat china foods beverage growth is likely to

47、outperform coca-colas total china systemsvolume growth as its sales regions are in relatively under-penetrated north/west china. in1h12, china foods grew beverage volumes by 12.6% vs. swire beverages of 1% andchinas average 8%. moreover, we expect significant margin upside over the medium tolong ter

48、m as per-capita consumption and mix catches up to the developed world.goldman sachs global investment research7october 23, 2012global: beverages: soft drinksrating and pricing informationthe coca-cola company (n/n, $37.40) and pepsico, inc. (n/n, $69.88)goldman sachs global investment research8octob

49、er 23, 2012global: beverages: soft drinksdisclosure appendixreg acwe, judy e. hong and lisa deng, hereby certify that all of the views expressed in this report accurately reflect our personal views about the subjectcompany or companies and its or their securities. we also certify that no part of our

50、 compensation was, is or will be, directly or indirectly, related tothe specific recommendations or views expressed in this report.investment profilethe goldman sachs investment profile provides investment context for a security by comparing key attributes of that security to its peer group andmarke

51、t. the four key attributes depicted are: growth, returns, multiple and volatility. growth, returns and multiple are indexed based on compositesof several methodologies to determine the stocks percentile ranking within the regions coverage universe.the precise calculation of each metric may vary depe

52、nding on the fiscal year, industry and region but the standard approach is as follows:growth is a composite of next years estimate over current years estimate, e.g. eps, ebitda, revenue. return is a year one prospective aggregateof various return on capital measures, e.g. croci, roace, and roe. mult

53、iple is a composite of one-year forward valuation ratios, e.g. p/e, dividendyield, ev/fcf, ev/ebitda, ev/dacf, price/book. volatility is measured as trailing twelve-month volatility adjusted for dividends.quantumquantum is goldman sachs proprietary database providing access to detailed financial sta

54、tement histories, forecasts and ratios. it can be used forin-depth analysis of a single company, or to make comparisons between companies in different sectors and markets.gs sustaings sustain is a global investment strategy aimed at long-term, long-only performance with a low turnover of ideas. the

55、gs sustain focus listincludes leaders our analysis shows to be well positioned to deliver long term outperformance through sustained competitive advantage andsuperior returns on capital relative to their global industry peers. leaders are identified based on quantifiable analysis of three aspects of

56、 corporateperformance: cash return on cash invested, industry positioning and management quality (the effectiveness of companies management of theenvironmental, social and governance issues facing their industry).goldman sachs disclosurescoverage group(s) of stocks by primary analyst(s)judy e. hong:

57、 america-beverages us, america-tobacco us. lisa deng: asia pacific consumer and retail.america-beverages us: beam inc., boston beer company, brown-forman corp., coca-cola enterprises, inc., constellation brands, dean foodscompany, dr pepper snapple group, molson coors brewing co., monster beverage c

58、orporation, pepsico, inc., the coca-cola company.america-tobacco us: altria group, inc., lorillard, inc., philip morris international inc., reynolds american inc.asia pacific consumer and retail: ajisen china holdings, amorepacific, cj cheiljedang, china foods, china resources enterprise, china yuru

59、n foodgroup, far eastern department stores, gourmet master, greatview aseptic packaging company, hengan international, kt&g, lg household &healthcare, mengniu dairy, orion, president chain store, ruentex industries, stella international holdings, sun art retail group, tingyi (caymanislands)

60、holdings, uni-president china holdings ltd., uni-president enterprise, want want china holdings, yue yuen industrial.company-specific regulatory disclosuresthe following disclosures relate to relationships between the goldman sachs group, inc. (with its affiliates, goldman sachs) and companiescovered by the