Brewer eyes competitors after Snow Beer buyout

China's top brewer could start acquiring smaller competitors to cement its leading position in the Chinese beer market, after buying out venture partner SABMiller Plc and taking full ownership of the world's best-selling Snow Beer.

China Resources Beer Holdings Co on Wednesday agreed to buy SABMiller's stake in Snow Breweries for $1.6 billion, smoothing the way for a takeover of its partner by Anheuser-Busch InBev NV. The Hong Kong-listed unit of China Resources Holding Co currently owns 51 percent of the venture.

"Once the SABMiller deal is completed, they may start to buy some small breweries again," said Bloomberg Intelligence analyst Duncan Fox. Potential targets include Beijing Yanjing Brewery Co, China's fourth-biggest brewer by volume, although deals would be subject to balance sheet constraints, he said.

Yanjing, backed by the Beijing municipal government, plans to sell about a 20 percent stake to a foreign strategic partner, people with knowledge of the matter said. Yanjing Beer denied those plans.

Small regional breweries with shares of around 2 percent or less make up the bulk of China's expanding beer consumption, while beermakers including China Resources and Tsingtao Brewery Co lead nationally, according to data from Euromonitor International.

Shares of Chinese brewers rose, with Shenzhen-listed Yanjing gaining as much as 1.5 percent to 6.85 yuan ($1.05). China Resources Beer and Tsingtao advanced as much as 3.84 percent and 2.04 percent, respectively, in Hong Kong.

China Resources plans to buy up regional brewers as it sees "great opportunities" to enhance its presence in this way, the beer unit's Chief Financial Officer Frank Lai said in August, comparing the strategy with how the company strengthened its position in southern China by buying Kingway Brewery Holdings Ltd's assets in 2013.

Large beer makers such as China Resources may need to merge to gain market share in order to survive, said Haitong International Securities Co analyst Nicolas Wang. They also need to improve their products to meet Chinese customers' rising demands for better quality, as the local market is already crowded with low-end beer.

While Asia has been awash with low-priced beer for decades, rising incomes mean younger connoisseurs are willing to spend more. For example, AB InBev said in a 2015 report that profitability is as much as nine times greater for premium beer in China compared with mainstream lines.

Snow, which had a 23 percent share of China's market last year, outsells all other beers globally by volume after overtaking Bud Light in 2008. The brewery produces enough liquid to fill about 12 Olympic-sized swimming pools every day, according to SABMiller's website.

China Resources sells hardly any beer overseas. The brewer has been trying to lift the image of its products in China by raising prices and pushing out higher-grade brews, said BNP Paribas SA analyst Charlie Chen.

China Resources said it is aiming to drive sales and profitability by growing higher-priced brands with better margins. Its aspiration of capturing the higher end of the drinks market could be hampered as AB InBev becomes a competitor.

China Resources may "need to tie-up with another brewer to get some premium brands moving through, or maybe they have learned enough of SABMiller about the art of brewing that they create another brand", Bloomberg Intelligence's Fox said.