Haitong International released a research report stating that as of the end of March, the historical percentile of the price-to-earnings ratios for A/H-share food and beverage stocks was 10%/12%, indicating a low level of institutional allocation. Against a backdrop of rising risk aversion, returning foreign capital, and support from peak season demand, leading soft drink companies offer high allocation value 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 (09980), a leader in functional beverages with an attractive valuation following platform maturation and potential sugar tax impacts; and NONGFU SPRING (09633), which holds advantages in both product categories and channel organization. Haitong International's main views are as follows:
In 2025, industry profit growth significantly outpaced revenue growth, with functional beverages and sugar-free tea maintaining high growth momentum, reinforcing the strength of leading players. The combined revenue of six major listed soft drink companies (EASTROC, NONGFU SPRING, TINGYI, U-PRESID, China Resources, and China Foods) increased by 6.1% year-on-year, while net profit attributable to shareholders grew by 21.9%. The median gross profit margin and net profit margin rose by 0.3 and 0.4 percentage points, respectively. Leaders in the functional and health-focused segments achieved high revenue growth and profit recovery, whereas diversified companies like TINGYI and U-PRESID faced pressure in their beverage segments compared to other business lines.
By category: Functional beverages and electrolyte drinks saw robust growth, with EASTROC's energy drinks up 17.3% and electrolyte drinks surging 119%; NONGFU SPRING's functional beverages increased by 17%. Ready-to-drink tea beverages grew strongly, with NONGFU SPRING's segment up 29%, surpassing packaged water to become its largest category for the first time. TINGYI accelerated its layout in sugar-free tea, expecting a 2-3 fold expansion by 2026. Packaged water sales grew healthily, with NONGFU SPRING up 17%, while China Resources' packaged water segment declined by 21.6%. Carbonated drinks remained stable, with TINGYI posting 4.8% growth. Juice categories generally faced pressure.
Key company operational highlights: EASTROC has solidified its platform, achieving high growth in energy drinks and electrolyte beverages, commenced overseas expansion into Southeast Asia, and provided a positive outlook for Q1 2026 following proactive inventory control. NONGFU SPRING demonstrated strong tea beverage growth and a recovery in packaged water, with profitability in its water business returning to historical highs, supported by channel optimization and stable pricing. TINGYI's beverage segment faced pressure, but its instant noodle business returned to growth, driven by digital efficiency gains from its "Five-Code Integration" initiative and product mix optimization. U-PRESID reached its second-highest revenue level historically, with stable pricing in beverages despite segment pressure, and its snack retail channel sales doubled. China Foods achieved growth in average selling price for Coca-Cola products against the trend, saw double-digit volume growth for its Ice Dew water brand, and invested in digitalization and healthy foods.
Cost benefits 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 Foods' gross margin decreased by 0.7 percentage points due to a higher proportion of water sales and rising aluminum costs. Expense ratios remained mostly stable, although NONGFU SPRING's sales expense ratio decreased by 2.7 percentage points; increased promotional spending for its 30th anniversary in 2026 may raise expenses. Inventory growth was generally slower than revenue growth (overall inventory/revenue +0.8%/+0.1%), with EASTROC's year-end inventory down 38%, confirming proactive inventory management.
Looking ahead to 2026, the health and functional trends in the soft drink industry are expected to continue, with functional beverages and sugar-free tea showing the strongest growth certainty. Leading players are likely to maintain their dominance despite increased competition from new entrants, leveraging their organizational, channel, and digital capabilities. On the demand side: Positive sell-through feedback in Q1, with January-February production up 1.2% year-on-year. The Tomb-Sweeping Festival holiday saw a 6% increase in passenger trips and a 2.4% rise in average daily sales for key retail and catering enterprises; upcoming holidays like Labor Day are expected to further boost demand. The catering sector will benefit from a low base effect starting in April, suggesting improved industry growth. On pricing: Discounting in soft drinks has intensified since the second half of 2025, with fierce competition in packaged water and carbonated drinks, while ready-to-drink tea remains relatively stable. Price wars in packaged water may ease within the year due to cost control efforts by leaders and rising inflation expectations. On the cost front: Cost benefits are expected to continue in the first half of 2026 but diminish marginally; geopolitical volatility affecting PET prices could impact profit visibility in the second half. Most companies have locked in costs for the near term and have no immediate price increase plans, instead focusing on packaging optimization, product mix improvements to protect margins, and enhancing efficiency to offset pressures.
Risks include intensified industry competition, raw material price fluctuations, uncertainty regarding sugar tax policies, and slower-than-expected consumer recovery.
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