Pacific Securities issued a research report forecasting that CR BEVERAGE's (02460) operating revenue for 2025-2027 will reach RMB 11.47 billion, RMB 12.24 billion, and RMB 13.12 billion, respectively, representing year-on-year growth of -15%, +7%, and +7%. Net profit attributable to shareholders is projected to be RMB 1.28 billion, RMB 1.41 billion, and RMB 1.55 billion, with year-on-year growth rates of -22%, +11%, and +10%. The corresponding P/E ratios are estimated at 20X, 18X, and 16X. An "Add" rating was assigned.
The report highlights CR BEVERAGE as a leader in the purified water industry, which originated in Southern China and has expanded nationwide over more than 40 years, becoming the second-largest packaged water enterprise in China with an 18.4% market share. From 2021 to 2024, the company's operating revenue grew from RMB 11.34 billion to RMB 13.521 billion, achieving a compound annual growth rate (CAGR) of 6.04%. Net profit increased from RMB 858 million to RMB 1.661 billion, with a CAGR of 24.63%, driven by improving gross margins and a declining sales expense ratio, which enhanced profit elasticity.
Packaged drinking water remains the core of the company's revenue structure, accounting for 84.6% in the first half of 2025. In recent years, the beverage business has accelerated its layout, with its contribution rising from 4.6% in 2021 to 15.4% in the first half of 2025. The packaged water industry exhibits stable demand, supported by strong brand and channel foundations, with significant potential for nationwide expansion. According to Euromonitor data, China's packaged water market grew from RMB 50.9 billion in 2010 to RMB 219.9 billion in 2024, with a CAGR of 11.02%, propelled by increasing demand for healthy, safe, and convenient drinking water. Compared to international markets, China's packaged water penetration rate was approximately one-fourth that of the United States in 2023, indicating substantial room for future growth.
The packaged water market is characterized by high standardization and homogeneity, leading to a highly concentrated industry landscape. Since 2024, competition has intensified, with several companies engaging in price wars, causing short-term market disruptions. While Nongfu Spring's market share initially declined before gradually recovering, and Wahaha continued to gain share, CR BEVERAGE experienced a slight decrease. The company has cultivated a mega-product generating over RMB 10 billion in revenue, adhering to a sports marketing strategy focused on core athletic demographics to build its flagship "C'estbon" brand. It boasts an extensive and robust sales network, comprising over 1,000 distributors and nearly 3 million retail outlets nationwide, with sales personnel demonstrating above-average revenue generation capabilities.
Having established a dominant position in Southern China, where it holds over half the market share, the company is seeing emerging growth in Eastern and Southwestern markets. In the first four months of 2024, the Southern, Eastern, and Southwestern markets accounted for 30%, 29%, and 15% of revenue, respectively. Efforts are being intensified to develop Northern markets, indicating significant potential for nationwide expansion.
The secondary beverage segment represents a substantial growth opportunity. In recent years, CR BEVERAGE has expanded its beverage portfolio, enriching its health-oriented product matrix with new offerings such as herbal plant drinks, sugar-free teas, sports drinks, and coffee. Beverage revenue reached RMB 1.397 billion in 2024, achieving a CAGR of 38.8% from 2021 to 2024. On the channel front, the company is actively competing for and supporting retail terminals while increasing the deployment of refrigerated displays, with a medium-to-long-term goal of installing one million units. While the per-outlet revenue for water products is strong and comparable to leading peers, beverage revenue per outlet is only 13% of that for water. As the product portfolio diversifies, the company is strengthening beverage channel coverage and refrigerator placement, suggesting ample potential for future beverage growth.
An increase in in-house production proportion and volume growth in the beverage business are expected to drive gross margin expansion. Enhanced scale effects and operational efficiencies are projected to optimize the expense ratio, potentially leading to an upward shift in the net profit margin. In the first half of 2025, the company's net profit margin stood at 13.26%, significantly lower than Nongfu Spring's 29.75% and Dongpeng Beverage's 22.12%, primarily due to a lower self-production ratio and higher marketing expenses.
Potential risks include food safety issues and intensified industry competition.
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