It also sends its managers to new plants to improve their brewing techniques and upgrade facilities. Tsingtao has told 10 of the plants acquired in recent years to start making profits this year, said Zhang.
Pricey stock
The acquisitions are causing a strain: Tsingtao's profit margin has averaged only 2 percent over the past five years, compared with 24 percent for Yanjing.
Just two of eight analysts covering Tsingtao have a "buy" rating on the shares, which rose 43 percent so far this year compared with an 18 percent drop in the Hang Seng Index. An index of China-owned companies, known as H shares, rose 22 percent during the same period.
Analysts surveyed by IBES are generally more optimistic than ING's Bao. They expect earnings to rise to 0.091 yuan a share this year and 0.115 yuan next year from 0.069 yuan last year. Tsingtao still trades at 38 times last year's earnings, almost five times the average of companies on the H share index, and 27 times this year's earnings.
Because it is still absorbing mergers, "Tsingtao has to be 20 percent cheaper than what it is now before we'll invest," said Michael Nock, who helps manage US$20 million at Doric Capital in Hong Kong.
The ultimate prize is a dominant share in a market that swelled 8.3 percent last year to 22.3 million tons, second in size only to the US.
It's rivals are willing to sacrifice profits to boost sales and have deep-pocketed investors. Yanjing, controlled by Hong Kong-listed state investment company Beijing Enterprises Holdings Ltd, recently bought breweries in the northeast and Inner Mongolia.
Tsingtao's three most recent purchases, still to be completed, are further away than Xian. They are Baoji Brewery Co in the northwest, Tee Yih Jian Brewery in the southern city of Fuzhou, and Taicang Beer Factory, serving eastern areas around Shanghai.
Tsingtao is only letting up the pace slightly in response to profit concerns. It has allocated 280 million yuan for acquisitions this year, 13 percent below what it spent last year, according to Joe Zhang, an analyst at UBS Warburg Llc. The company faces "more pain and consolidation over the next three years," he reported at the end of June.
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