20260827-招银国际-农夫山泉-09633.HK-Tea_biz_fuelled_growth_2H26_key_variable_lies_in_cost_6页_1mb

Nongfu Spring (9633 HK) Summary

Core Content Overview

Nongfu Spring (9633 HK) is a leading player in the China consumer staples sector, with a strong focus on tea and water beverage businesses. The company has shown consistent growth in revenue and net profit over the past few years, driven by the performance of its tea business, which now generates over half of the group's operating profit. Despite challenges from rising costs, the company managed to improve its gross margin in 1H26.

Main Points and Key Information

Financial Performance (1H26)

• Revenue: RMB29.7bn, up 16.0% YoY
• Net Profit: RMB8.9bn, up 16.6% YoY
• Gross Margin: 60.9%, up 0.6ppt YoY
• Performance Against Consensus: Revenue and net profit both exceeded Bloomberg's expectations by 2% and 4% respectively.

Business Segments

• Tea Business:

  • Revenue surged 30% YoY to RMB13.1bn
  • Generates over half of the group's operating profit
  • Market share in sugar-free tea exceeds 80%
  • Expected to continue fast growth due to rising sugar-free tea penetration and no ceiling on growth potential

• Water Business:

  • Revenue grew 2.1% YoY, recovering market share in a shrinking industry
  • Still below the 2023 peak
  • Management sees long-term growth potential with per-capita consumption at ~1/3 of Western levels

• Functional Beverage Products:

  • Revenue increased by 16% YoY to RMB3,348mn
  • Segment OPM dropped by 2.4ppt due to a 30th-anniversary discount campaign

• Juice Beverage Products:

  • Revenue rose 14% YoY to RMB2,922mn
  • Segment OPM improved by 4.8ppt due to cheaper materials

• Other Products:

  • Revenue increased by 9% YoY to RMB684mn
  • Segment OPM dropped by 5.7ppt

Cost and Margin

• Cost Headwinds: Elevated PET and jasmine costs into 2H26
• Gross Margin: Expected to be impacted by two-way cost pressures, but tea segment's contribution provides some upside
• Management Guidance: Maintained double-digit revenue and profit growth for FY26, but did not provide margin guidance

Valuation and Investment Outlook

• Target Price (TP): HK$60.93, up 0.1% from previous TP of HK$60.88
• P/E Ratio: Based on 32x target P/E for FY26E, with weighted EPS for 2026E and 2027E
• Catalysts: PET price retreat, jasmine cost normalisation, promotion roll-off, and further share gains in the water business
• Risks: Food-safety incidents, raw-material price volatility, and intensified competition

Shareholder Structure

• Zhong Shanshan: 38.3%
• Yangshengtang Co.: 25.9%
• Source: HKEx

Stock Performance

• 1-Month Return: 10.5% (Absolute), 7.5% (Relative)
• 3-Month Return: 0.1% (Absolute), -0.1% (Relative)
• 6-Month Return: -5.8% (Absolute), -3.1% (Relative)
• Source: FactSet

Financial Summary (FY24A to FY28E)

• Revenue Growth: Expected to grow at a steady rate, with 11.5% in FY26E and 10.2% in FY27E
• Net Profit Growth: Expected to grow at 11.5% in FY26E and 10.6% in FY28E
• Gross Margin: Expected to remain stable around 60.8% for FY26E to FY28E
• Net Margin: Expected to increase slightly to 30.3% in FY28E
• ROE: Expected to decrease from 44.2% in FY25A to 37.8% in FY28E

Valuation Comparison

• P/E Ratio: Nongfu Spring is currently trading at 24.0x for FY26E, compared to an average of 21.7x for the sector
• Dividend Yield: Expected to rise to 3.6% in FY28E
• P/B Ratio: Expected to decrease to 7.0x in FY28E

Conclusion

Nongfu Spring is a high-quality company with multiple growth engines and sector-leading profitability. The tea business is a key growth driver, while the water business continues to recover market share. Despite cost pressures, the company is expected to maintain double-digit growth in revenue and profit. The current target price of HK$60.93 reflects the company's strong fundamentals and growth prospects, although risks such as food-safety issues and raw material volatility should be considered.