By Ben Otto


China Resources Beer (Holdings) Co. shares fell on its plans to acquire a Chinese liquor maker for almost $1.7 billion, but analysts expect the company to get a boost from entering the higher-margin segment for one of the world's most consumed spirits.

Shares fell as much as 9.4% early Wednesday before entering the midday break 4.4% lower at HK$42.20. The broader Hang Seng Index is up 2.2%.

China Resources late Tuesday said it planned to acquire a majority stake in Guizhou Jinsha Jiaojiu Winery via a share purchase and cash injection totalling 12.30 billion yuan ($1.69 billion). The move is part of its effort to tap into the giant market for baijiu, a Chinese liquor made by fermenting sorghum or other grains in brick or mud pits, often featuring alcohol content of 50% or more.

Bocom International analyst Edward Lui highlighted an "attractive price with immediate profit contribution," noting that the deal's price-to-earnings valuation of about 17 times is far below the average 36.9 times of listed baijiu players in China.

"We like CRB's continuous effort to fill its vast, nationwide distribution network with an expanding and improving product and brand portfolio," with offerings including low-margin mainstream beer, high-margin Heineken, non-beer categories and now the higher margin baijiu segment, Mr. Lui said. Bocom International has a buy rating and HK$69.00 target price on CRB.

Jefferies analysts Anne Ling and Lisa Liao said the deal was "coherent with CRB's strategy," and that any market fears about a capacity bubble in the sauce-flavor baijiu segment "is buffered by an inexpensive valuation."

They have a buy rating on the stock with a HK$66.00 target price, estimating the deal should enhance the company's net profit by about 9% for 2022 on an annualized basis.


Write to Ben Otto at ben.otto@wsj.com


(END) Dow Jones Newswires

10-26-22 0055ET