Haitong International has released a research report indicating that the beverage industry's profit growth significantly outpaced revenue growth in 2025. On the pricing front, discounts in the soft drink sector have intensified since the second half of 2025. Competition remains fierce in the packaged water and carbonated beverage segments, while ready-to-drink tea has shown relative stability. Price wars in packaged water are expected to ease within the year due to cost control efforts by leading companies and rising inflation expectations. On the demand side, passenger traffic during the Qingming Festival holiday increased by 6% year-on-year, while the average daily sales of major retail and catering enterprises grew by 2.4%. Upcoming long holidays, such as the May Day holiday, are anticipated to further boost industry sentiment. Regarding costs, cost advantages are projected to continue in the first half of the year but will diminish marginally. PET prices, influenced by geopolitical fluctuations, may affect profit visibility in the second half. The main viewpoints of Haitong International are as follows:
In 2025, industry profit growth significantly exceeded revenue growth. Functional beverages and sugar-free tea maintained high growth momentum, with leading companies strengthening their positions. The six major listed soft drink companies (Eastroc, Nongfu Spring, Tingyi, U-PRESID CHINA, China Resources Beverage, and China Foods) collectively saw a 6.1% year-on-year increase in revenue and a 21.9% year-on-year increase in net profit attributable to shareholders. The median gross profit margin and net profit margin rose by 0.3 and 0.4 percentage points, respectively. Companies focused on functional and health-oriented segments achieved high revenue growth and profit recovery. Diversified companies like Tingyi and U-PRESID CHINA faced greater pressure in their beverage segments compared to their instant noodle businesses. By category: Functional beverages and electrolyte drinks: Eastroc's energy drinks grew by 17.3%, and electrolyte drinks surged by 119%; Nongfu Spring's functional beverages increased by 17%, maintaining strong growth. Tea beverages: Nongfu Spring's ready-to-drink tea segment grew by 29%, surpassing packaged water to become its largest category for the first time. Tingyi is accelerating its layout in sugar-free tea and expects to expand this segment by 2-3 times in 2026. Packaged water: Nongfu Spring achieved double-digit growth of 17%, while China Foods also reported double-digit volume growth. Carbonated drinks: Tingyi's carbonated beverage segment grew by 4.8%, showing stable performance. The juice category generally faced pressure.
Key operational highlights for major companies: Eastroc Beverage has formed a platform-based structure, with strong growth in energy drinks and electrolyte beverages. It began its overseas expansion into Southeast Asia in its first year abroad and expects a bright outlook for Q1 2026 following active inventory management. Nongfu Spring saw high growth in tea beverages and a recovery in packaged water, with profitability in its water business returning to historical highs. Channel optimization has helped stabilize prices. Tingyi's beverage segment faced pressure, but its instant noodle business returned to growth. Its "Five Codes Integration" digital initiative improved efficiency, and product mix optimization drove profit recovery. U-PRESID CHINA achieved its second-highest revenue in history. While its beverage segment was under pressure, pricing remained stable, and its snack retail channel doubled. China Resources Beverage implemented management changes to advance channel reforms, focusing on restoring its core business. China Foods' Coca-Cola ASP grew against the trend, and its Ice Dew water brand saw double-digit volume growth. The company is also investing in digitalization and healthy food products.
Cost advantages continued in 2025, with industry inventory growth generally slower than revenue growth. Declining costs for PET and white sugar, combined with economies of scale, led to improved gross margins for Eastroc, Nongfu Spring, Tingyi, and U-PRESID CHINA. China Foods' gross margin fell by 0.7 percentage points due to a higher proportion of water sales and rising aluminum prices. Expense ratios remained mostly stable, but China Resources Beverage's sales expense ratio increased by 4.3 percentage points amid intensified competition and reduced scale benefits. Inventory growth was generally slower than revenue growth (overall inventory/revenue ratio at 0.8%, up 0.1 percentage points). Eastroc's year-end inventory decreased by 38%, confirming active inventory control.
Looking ahead to 2026, demand is expected to see mild growth driven by travel and dining. The health and functional trends in the soft drink industry will continue, with functional beverages and sugar-free tea being the most promising categories. Leading companies are expected to maintain their strengths despite increased competition from new entrants, leveraging their organizational, channel, and digital capabilities. On the demand side: Q1 sales feedback has been positive, with January-February production up 1.2% year-on-year. Qingming Festival passenger traffic increased 6% year-on-year, and average daily sales of major retail and catering enterprises grew 2.4%. Upcoming long holidays, such as the May Day holiday, are likely to further boost sentiment. The catering sector will benefit from a low base effect starting in April, supporting improved industry growth. On the pricing front: Discounts in the soft drink sector have deepened since the second half of 2025. Competition remains intense in packaged water and carbonated beverages, while ready-to-drink tea is relatively stable. Price wars in packaged water are expected to ease within the year due to cost control by leading companies and rising inflation expectations. On the cost side: Cost advantages are projected to continue in the first half but diminish marginally. PET price volatility, influenced by geopolitical factors, may affect second-half profit visibility. Most companies have locked in costs for the near term and have no immediate price increase plans. They intend to maintain gross margins through packaging optimization and product mix improvements, while controlling expenses to enhance efficiency.
Investment recommendation: As of the end of March, the historical percentile of A/H-share food and beverage sector P/E ratios stood at 10%/12%, with institutional allocations at low levels. Against a backdrop of rising risk aversion, returning foreign capital, and seasonal demand support, leading soft drink companies offer attractive valuations and sufficient safety margins. Key recommendations include: Tingyi (00322) and U-PRESID CHINA (00220), which have clear profit recovery paths and offer high dividends; Eastroc Beverage (09980), a functional drink leader with a platform-based structure and attractive valuation amid sugar tax impacts; and Nongfu Spring (09633), which holds advantages in both product categories and channel organization.
Risks include intensified industry competition, raw material price fluctuations, uncertainty regarding sugar tax policies, and slower-than-expected consumption recovery.
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