China Food

After the IPO of Nongfu Shanquan, the first semi annual report has been published. What’s the story of the future?

This sentence was recently said by Zhong Zhen, founder and chairman of Nongfu Shanquan (09633. HK).

Yesterday evening, the packaging water giant released its first financial report after listing. In the first half of 2020, the company’s revenue and net profit both declined. This kind of situation seems to be rare in the history of Nongfu mountain spring. Like many domestic beverage peers, it was explained in the financial report as external reason: mainly affected by the new crown epidemic.

Nongfu Shanquan’s revenue and profit in the first half of the year

After the report card was released, the share price of Nongfu Shanquan fell 7.5% to HK $35.15, with a total market value of about 393.3 billion yuan. However, the market value of the company, which mainly sells water, still far exceeds that of Mengniu, Kangshifu, Wangwang, Vita milk and other food and beverage enterprises listed in Hong Kong stock market.

Premise of overestimation

At present, Nongfu Shanquan, which has just been named “Hangzhou’s new consumer leader”, has a P / E ratio of more than 70 times, while that of beverage giants like coca cola is about 30 times. Today, when asked about his opinion, Nongfu Shanquan replied to the snack saying: “no comment.”




This packaging water giant in the capital market by the “pursuit” has also attracted the attention of foreign media. “Investors have given a very high valuation to Chinese consumer stocks like Nong Shan Quan, which we have never seen before.” Analysts at Macquarie Group were quoted by the financial times yesterday as saying.


The Wall Street Journal said today that investors flocked to Nongfu spring stock as an alternative indicator of China’s consumption. However, the number of shares in circulation held by the public is very low, which may distort the stock price in the short term. Nongfu Shanquan shareholders, who hold 97.6% of the shares, promised not to sell their shares for at least six months after the IPO, which will limit the supply of the shares on the market.

The wall street journal focuses on Nongfu spring

It is worth noting that the gross profit margin of the packaging water giant still increased in the first half of the year. According to the above financial report, the gross profit margin increased by 3.8 percentage points to 59.9% from 56.1% in the same period last year, which was mainly due to “the decrease of pet purchase price and the change of product structure”.

In terms of the change of product structure, the financial report of snack food agency shows that in the first half of 2020, the proportion of packaged drinking water with the highest gross profit rate in the income increased the largest, the proportion of other products with the lowest gross profit rate also increased, and the proportion of other product categories decreased.

Which business is more resilient?

In fact, although the overall revenue of Nongfu spring declined in the first half of the year, the performance of different categories of products was not consistent. Let’s take a look at them one by one.

First of all, take a look at Nongfu mountain spring’s traditional strong field of packaging water. According to the financial report, in the first half of this year, the packaged drinking water products business, which accounted for more than 60% of its revenue, was basically the same as that of the previous year (a slight increase of 0.7% year-on-year). Among them, the income of medium and large sized packaged drinking water products suitable for household consumption increased by more than 26.2% compared with the first half of last year.

“Although affected by the epidemic situation, our packaged drinking water products present the consumption rigidity of essential consumer goods.” Nongfu mountain spring said. In order to reduce the impact, the company also set up “unmanned water supply points” in more than 5000 residential areas throughout the country during the epidemic period, so that consumers can pay by mobile phone.

Performance of Nongfu mountain spring in the first half of 2020

The company’s second largest business sector, “tea beverage products”, was greatly affected by the epidemic. In the first half of this year, the revenue was 1.6 billion yuan, down 10.7% year-on-year.

In the first half of the year, the income of “Nongfu beverage” decreased by RMB 36 million, the largest decline of which was in the functional beverage sector. “During the epidemic period, schools, sports venues and other consumer places were closed, which had a great impact on the consumption demand of functional beverage products.” Nongfu mountain spring explained.

As for the “fruit juice beverage products” sector, Nongfu Shanquan pointed out in the financial report that due to the epidemic situation and the relatively earlier Chinese Spring Festival in 2020 compared with that in 2019, the dealers had prepared goods in advance at the end of 2019. The first half profit of this business was 942 million yuan, down 9.7% year-on-year.  

In addition to packaged drinking water products, “other products” which account for a relatively small proportion of farmers’ spring income are also “growing against the trend”. According to the financial report, this business sector mainly includes coffee drinks, soda water drinks, gas flavored drinks, plant yoghurt, and fresh fruits and other agricultural products, with a revenue of 453 million yuan in the first half of the year, up 210.3% year-on-year.  

In the first half of this year, Nongfu Shanquan also launched a series of new products for this fast growing business sector. For example, in May 2020, the “tot” aerated flavor beverage was launched; in June 2020, as an extension of the aluminum can line coffee product, the cup coffee beverage “carbon cup coffee” was launched.

Nongfu mountain spring brand

What’s the story of the future?

Having won the crown of China’s packaged drinking water market and experiencing the highlight of IPO, what is the future story of this Hangzhou based beverage company?

On September 20, the food industry analyst of Everbright Securities said in a research paper that in the bottled water market, nongnongfu spring firmly grasped the trend of upgrading consumption from RMB 1 to RMB 2 and pure water to natural water / natural mineral water. In addition, Nongfu Shanquan has more cost advantages under the mode of self built factory, which also helps its distributors / terminals benefit.

“In the 2 yuan water market with the mass price, it is different from the pure Yue of Yibao, Wahaha and Coca Cola, which locate pure water. Nongfu mountain spring provides differentiated natural aquatic products at the same price.” According to the analysis of the above report, in the future, with the improvement of market concentration, Nongfu mountain spring is expected to continue to increase its market share in the bottled water market.

The report also believes that Nongfu mountain spring’s bottled water business is expected to become a potential growth point.

According to its analysis, first of all, Nongfu Shanquan set foot in this field earlier and reached home consumers more deeply through the self built “sesame shop” channel. From 2017 to 2019, the compound annual growth rate of sales of medium / large packaging water reached 30%, far higher than the company’s overall packaging water business. Secondly, Nongfu mountain spring is now open to “standard water station” recruitment, which helps to solve the problem of distribution radius and promote the future growth of bottled water.

For the beverage sector, the above research report believes that tea π shows that the company has the ability to create explosive products, and the beverage can share the packaging water at the channel end, laying a good foundation. As Nongfu mountain spring packaging water sinks to the low-level market, the beverage is expected to further improve its coverage.

However, Nongfu spring is also facing more and more fierce competition. In other beverage segments, Nongfu Shanquan is facing strong competitors ahead of itself.

Photo source: Everbright Securities

According to the data of Euromonitor quoted in the above report, in 2019, the market share (sales volume) of Kangshifu tea beverage was the first, Coca Cola and Pepsi Cola were the top two in carbonated drinks, the market share of meizhiyuan, a brand of Coca Cola, was the first, while Nestle coffee was the first in the ready to drink coffee market, and red bull was the largest in the energy beverage market.

In addition, from the perspective of brand image, the younger and equally radical Beijing beverage company Yuanqi forest has also sprung up in recent years. In addition to making a lot of noise on the Internet, Yuanqi forest has recently announced the investment in fixed assets, and hopes to quickly seize the shelves of various categories in the beverage market.

Photo source: Everbright Securities

At present, one of the competitive strategies of the beverage business of this packaging water giant is to lay out its promising future trend in advance. The above-mentioned research report points out that compared with competitive products, Nongfu mountain spring’s beverage “healthy” layout is more comprehensive. For example, in the field of tea drinks, Nongfu mountain spring launched the Oriental leaves without sugar and 0 card as early as 2011.

Finally, back to drinking water. In addition to the bottled water business, there are various signs that Nongfu spring will add more mineral water in the future, which is generally considered to be in a higher price band in China. Xiaoshidai noted that the greater khinganling district administrative office posted an article on its official website saying that the district was actively negotiating with Nongfu Shanquan to establish its investment intention.

“At present, the investment department of Nongfu mountain spring has completed the evaluation of the investment plan, which has been discussed and approved by the group company. It is waiting for Nongfu mountain spring to come to our district for field investigation, water quality evaluation and project site selection.” The article also claims that the local water quality is comparable to the French Evian mineral water.

When talking about future plans, Nongfu Shanquan pointed out in the above-mentioned semi annual report that the future plans and fund-raising purposes were consistent with those disclosed in the previous prospectus. In other words, the company will make efforts in brand building, improving terminal sales capacity and increasing production capacity.

“Going public is just a new beginning. All the staff of Nongfu spring will work hard with more enthusiasm to give back to investors and consumers for their love for Nongfu spring. ” “Back and forth” in China’s richest person due to IPO


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