Business Summary:

Founded in 1996, Nongfu Spring is China's largest packaging water supplier, and is one of the top 20 beverage companies in China. In terms of retail sales in 2019, she ranks among the top three in the Chinese market for tea beverages, functional beverages and juice beverages.

Nongfu Spring has never used tap water and never added artificial minerals to its drinking water. She has the world's advanced drinking water production line and its high-speed aseptic filling equipment meets the Log6 sterility standard.

As of 2019, it manages more than 4,000 dealers and more than 10,000 front-line sales personnel and sales management personnel across the country through its mobile phone terminal system.

Financial Summary:

For the six months ended June 30 2022, revenue was RMB16,599 million, representing a year-on-year increase of 9.4%. Profit attributable to the owners of the company was approximately RMB4,608 million, representing a year-on-year increase of 14.8%. Basic earnings per share were RMB0.41, representing a year-on-year increase of 13.9%.

The gross profit margin decreased by 1.6% from 60.9% to 59.3%. which was mainly due to the increase in PET (raw material in product packaging) procurement costs as a result of changes in international crude oil prices.

The percentage of total revenue for Packaged drinking water products, Tea beverage products, Functional beverage products, Juice beverage products, Other products was 56.3%, 19.9%, 12.2%, 7.7% and 3.9% respectively.

Risk:

(a) the outbreak of coronavirus may have affected the sales of functional beverage product.

(b) sales may be affected by news about safety issues

(c) gross profit margin may be affected by raw material price volatility mainly for product packaging

(d) Among the other beverage products company peer, Nongfu Spring ranks the highest P/E ratio of 57.8 and the highest P/B ratio of 20.06.

(e) higher-than-expected cost for material sourcing, production cost  and network expansion may occur.

Technical Analysis:

The stock prices hit yearly high of $68.75 on 8 Jan, 2021. The price dropped by 52.9% to yearly low of $32.35 on 15 Mar 2022.  Currently, it is suggested to accumulate at the price below $43.0. The target price for medium term is $47.0. Cut-loss price will be $39.0.

References

www.hkex.com.hk

www.etnet.com.hk

www.afe-solutions.com

I, Gary Tam, am a licensed person under the Securities and Futures Commission. Until the date this commentary was published, neither I and/or my affiliates are the beneficiary of the securities mentioned herein or are entitled to any financial interests in relation thereto.