CMSC released a research report stating that NONGFU SPRING (09633) has provided positive guidance from its shareholder meeting, with continuous new product catalysts and solid underlying sales performance, positioning it to benefit from the upcoming peak season. The firm maintains its earnings per share forecasts for 2026-2028 at RMB 1.60, RMB 1.78, and RMB 1.99, respectively, implying a 2026 P/E of 23x. Following a pullback, the valuation has returned to an attractive range for investment. A target price of HK$55 is set, with a "Strongly Recommended" investment rating maintained. CMSC's key views are as follows:
The company holds a positive outlook for 2026. CMSC believes the company is poised to achieve double-digit growth in 2026, with the growth trajectory for the next three years also expected to average double digits. Incremental growth will stem from deeper penetration of packaged water usage scenarios, demand for sugar control driven by GLP-1 weight-loss drugs, and the gradual launch of pipeline products.
The sugar-free tea segment still holds significant growth potential, with new products being launched in a phased manner. Electrolyte water is anticipated to contribute incremental growth in 2026. Recent sales feedback has been positive, with strong products continuing their high growth momentum.
Positive double-digit growth guidance for 2026; substantial room for sugar-free tea development. The company is optimistic about 2026. CMSC projects the company can achieve double-digit growth in 2026, with the average growth rate for the next three years also likely to be double-digit. Growth drivers include further penetration of packaged water applications, sugar-control demand fueled by GLP-1 drugs, and the sequential launch of new products in the pipeline. The company holds a competitive edge in the sugar-free tea category, securing consumer loyalty through strong product quality. The sugar-free tea segment aligns with the core health trend and possesses ample growth potential. CMSC notes that, benchmarked against Japan, if sugar-free tea penetration reaches one-third to one-half of Japan's level, the "Dongfang Shuye" brand has the potential to become a RMB 50 billion flagship product.
Competition in the packaged water industry is a constant, but the company has full confidence in both industry development and its own operations. After a period of undervaluation in 2024, growth recovered in 2025. Negative public sentiment has been clarified, and there is further room for market share gains.
New products are being launched in phases; electrolyte water expected to contribute in 2026. Regarding new products, electrolyte water sales have reached approximately RMB 300 million+ year-to-date, with a target of RMB 500 million+. The "Scream" brand leverages years of technical expertise, with consistent osmotic pressure as its core selling point. Previously, this feature was overlooked within the broader category. The independent launch aims to reactivate brand recognition. The "Health Water" concept will not be deliberately developed as a standalone category. Products like "Dongfang Shuye" Chenpi White Tea and "Scream" Ginseng Water already incorporate health attributes. Coffee-based products will differentiate through low caffeine content and high quality. An energy drink utilizing differentiated caffeine sources is expected to launch by late this year or early next.
Stable channel policies, avoiding industry price wars to ensure ecosystem health. On the cost front, facing pressure from rising raw material costs like crude oil, the company adheres to three stable policies regarding product pricing, market conduct, and internal management, refusing to engage in destructive industry competition. As a leading player, it bears responsibility for guiding industry pricing. Regarding channel strategy, the company will maintain a healthy industry ecosystem, ensuring channel partners receive reasonable profits commensurate with their efforts. It pledges to retain at least a 10% profit margin for vulnerable segments like agriculture, deeming profit squeezes across the supply chain unethical.
Positive sales feedback; strong products sustain high growth. Sales have grown at a double-digit rate year-to-date, with water and beverages posting mid-to-high single-digit and high double-digit growth, respectively. "Dongfang Shuye" continues to lead the sugar-free tea category with over 20% growth. A RMB 1 exchange promotion for beverages in late February effectively boosted sales, improving end-consumer reach efficiency. Packaged water market share remains on an upward trajectory. The soft drink season traditionally strengthens from May. Electrolyte water distribution exceeds 80%; current sales performance relies on promotions, awaiting validation during the peak season.
Risk warnings: Intensifying industry competition, rising raw material costs, slower-than-expected new product expansion, and potential sample data errors.
Comments