Despite posting impressive financial results, Eastroc Beverage has faced setbacks in the capital markets.
Recently, news that "Zhang Xue Motorcycle" won the World Superbike Championship in Portugal spread widely online, marking a breakthrough for Chinese motorcycles by breaking the long-standing dominance of European, American, and Japanese manufacturers in top-tier motorcycle racing. Alongside the buzz around founder Zhang Xue's inspiring "rags-to-riches" story, Eastroc Beverage, a brand not directly related to motorcycles, unexpectedly reaped significant publicity benefits.
A dramatic narrative has circulated online: prompted by netizens' enthusiastic recommendations, Eastroc Beverage reportedly secured millions of dollars worth of exposure for a sponsorship fee of just 50,000 yuan. Topics such as "Eastroc Beverage's bet on Zhang Xue Motorcycle pays off massively" trended on social media, prompting a rare response from the company's management. They stated, "The logos on the bike, except perhaps for Mayang Ancient Brown Sugar, are likely worth more than 50,000 yuan, so ours certainly is too," while keeping the exact sponsorship amount confidential.
Coinciding with the earnings reporting season, Eastroc Beverage (605499) announced that its 2025 revenue surpassed the 200 billion yuan mark for the first time, reaching 208.75 billion yuan, a 31.8% year-on-year increase. Net profit attributable to shareholders rose 32.72% to 4.415 billion yuan, officially placing it among the top five performers in the soft drink industry. This "king of energy drinks," which started by emulating Red Bull, has once again become a market focus.
Notably, Eastroc Beverage's 2025 financial report included an "Chairman's Statement" section for the first time. Chairman Lin Muqin mentioned that the group was listed on the main board of the Hong Kong Stock Exchange in February, achieving a dual capital market presence with "A+H" shares and standing at a new starting point for development.
However, Eastroc Beverage's performance in the Hong Kong secondary market has been weak. Despite support from 15 cornerstone investors, including Temasek, Tencent, and UBS Asset Management, its stock price fell below the issue price just over a month after listing.
On April 7, Eastroc Beverage's Hong Kong stock (09980.HK) closed at HK$203.6 per share, down 17.9% from its issue price of HK$248. The company's corresponding market capitalization was HK$115 billion, a 27.5% decrease from its peak market cap of HK$158.5 billion shortly after listing, representing a contraction of over HK$40 billion in just two months.
Why has Eastroc Beverage, with its strong growth, failed to win investor favor?
Looking at its product revenue structure, the company's performance is highly reliant on its "Eastroc" energy drink. This flagship product generated nearly 15.6 billion yuan in revenue last year, accounting for approximately 75% of total revenue. While a flagship product helps a company focus resources and quickly penetrate the market, it also implies lower risk resistance. Eastroc Beverage's "over-reliance on a single product" has been a market concern for years.
The energy drink market is gradually becoming saturated. With Eastroc's sales and market share already at high levels, there is limited room for further significant growth, leading to concerns about diminishing momentum. Financial report data shows that last year, the sales growth rate for its energy drinks slowed significantly to just 17.25%.
Eastroc has been attempting to build a "second growth curve." According to management, the product strategy follows a "1+6" model: one flagship product plus six new categories, including electrolyte beverages, tea drinks, coconut water, and coffee. Currently, these new products collectively contributed over 5.2 billion yuan in revenue, increasing their share to 25% of total revenue. However, compared to the revenue structures of leading players like Nongfu Spring, Tingyi, and Uni-President, there is still room for improvement.
Management specifically highlighted three new products: "Eastroc Bubbles" electrolyte water saw its revenue exceed 3 billion yuan for the first time last year, while both "Fruit Tea" and "Eastroc Coffee" surpassed 500 million yuan in revenue.
As competition in the beverage market intensifies, launching new products requires substantial resource investment. It was noted that last year, spending on channels such as outdoor advertising and bus advertisements increased for these new products. The company's sales expenses grew 27% year-on-year to 3.405 billion yuan. Specifically, increased placement in refrigerated cabinets led to a 57.55% rise in channel promotion expenses, and sales staff compensation increased by 23%.
"Bubbles," as Eastroc's second-largest product, follows the value-for-money strategy of "Eastroc" energy drink. Priced at 4.5 yuan per bottle in gym vending machines, it holds a price advantage compared to competitors like Mizone, Genki Forest Alien, and Pocari Sweat, which are priced around 6 yuan per bottle.
Competition in the electrolyte water segment is intensifying. The real challenge for "Bubbles" may come this year. In March, Nongfu Spring announced the launch of its own electrolyte water, targeting daily hydration needs and entering the market at under 4 yuan per bottle. The market believes that given Nongfu Spring's extensive distribution network and brand-building capabilities, Eastroc's "Bubbles" will face direct competitive pressure.
Looking at quarterly performance, increased marketing and channel expansion costs have already begun to compress Eastroc Beverage's profit margins. In the fourth quarter of last year, revenue was 4.031 billion yuan, up 22.88% year-on-year, but net profit attributable to shareholders was only 654 million yuan, a mere 5.66% increase. This profit growth rate lagged significantly behind revenue growth, dragging down the overall profit margin. Compared to the same period in recent years, this marks the first time its profit growth has slowed to a single-digit percentage.
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