Tsingtao's half-year profits edge up after marketing push

HONG KONG Aug 15 (Reuters) - Tsingtao Brewery Co Ltd , China's second-largest beer maker by volume, reported a 1.8 percent rise in first-half net profit on Wednesday as a big marketing drive was offset by a weakening domestic economy.

Tsingtao, in which Japan's Asahi Breweries holds a nearly 20 percent stake, made an after-tax profit of 1.01 billion yuan ($159 million) for the period, up from 989.9 million yuan a year ago on revenue up 11.2 percent at 13.41 billion yuan.

The market had expected a net profit of 1.1 billion yuan, according to the average forecast given by three analysts.

The growth was slower than a 14.5 percent rise in first-quarter net profit.

Tsingtao, which sponsored China's "diving princess" and gold medalist He Zi in the London Olympics as well as former record holder Liu Xiang who fell in the 110 metre hurdle race, had increased its marketing spend to drive volume sales in the first half of the year, analysts said.

Despite slower growth in the mainland beer market and high raw materials costs, large national players such as Tsingtao and China Resources Exterprise's Snow beer brand are gaining market share at the expense of regional players like Huiquan Brewery and Kingway Brewery.

"We expect to see a divergent 1H 12 performance between beer companies, in terms of sales volume and profitability," Mabel Wong, analyst at Deutsche Bank said in a research note. "Large national beer companies like Tsingtao Brewery are thriving."

One of China's oldest beer makers, Tsingtao was founded in 1903 by German and British merchants under the name Nordic Brewery Co Ltd Tsingtao Branch.

But China's brewers are facing increasing competition in their home market, the largest in the world where 45 million kilolitres of beer were consumed in 2010 and growth in demand is running at around 5 percent a year. ID:nL4E7M22D2]

In June Tsingtao's chief executive Jin Zhiguo resigned for health reasons, a departure which the company said would open up its management team and help cultivate a succession system for talented executives.

COMPETITION

Tsingtao, which aims to boost annual production capacity to 100 million hectolitres in 2014, competes with China's largest brewer CR Snow - a joint venture between China Resources Enterprise and SABMiller Plc.

It also competes with local rivals, including Beijing Yanjing Brewery and Kingway, as well as foreign brewers like Heineken and Carlsberg.

Kingway warned last month of a significant loss for the first half of 2012 due to poor beer sales and higher costs.

Tsingtao's Hong Kong-listed shares are up about 5 percent so far this year, against an 8 percent rise in the Hang Seng Index . Its Hong Kong shares closed down 0.9 percent on Wednesday before the results statement, which compared with a 1.2 percent drop in the benchmark Hang Seng Index. ($1 = 6.3586 Chinese yuan) (Reporting by Donny Kwok; Editing by Jason Subler and Greg Mahlich)