Tsingtao Brewery (H):Issues profit warning:FY16net income to drop 39%yoy

Tsingtao issued a profit warning on March 21, expecting FY16 net income todecrease by 39% yoy. The company mainly attributed this to a supplemental incometax payment of Rmb338.9mn arising from the application of an expired preferentialincome tax rate.

The 39% yoy drop implies reported net income of Rmb1,045mn for FY16; excludingthe one-off supplemental income tax payment of Rmb338.9mn implies net incomeof Rmb 1,383.9mn. This is 7% below our 2016E reported net income estimate ofRmb 1,488.9.

Given Tsingtao has already reported 9M16, the net loss for 4Q (excluding the one-offtax payment) could be around Rmb456—the lowest quarterly number in five years.

We maintain our estimates, Neutral ratings on H/A and 2017-18E EV/EBITDA-based12m TPs of HK$30/Rmb26.70. A share March 21 close: Rmb33.70. Key risks:Better/worse-than-expected volume growth; accretive M&A.