Summary of China Resources Beverage (2460.HK) Earnings Review Company Overview - **Company**: China Resources Beverage (2460.HK) - **Market Cap**: HK$34.4 billion / $4.4 billion - **Current Price**: HK$14.66 - **12-Month Price Target**: HK$19.00 - **Upside Potential**: 29.6% [1] Key Financial Highlights - **FY24 Results**: Net margin beat reported on March 21, 2024 - **Earnings Forecast**: Revised up by 6% for 2025 to Rmb2.06 billion, representing a 26% year-over-year increase - **P/E Ratio**: Trading at 16x 2025 P/E on updated estimates [1][17] Core Insights from Analyst Briefing 1. **2024 Performance**: - Resilient performance despite a slowing industry - Profitability exceeded expectations with stable topline growth - Packaged water retail sales gained 0.4 percentage points in market share - Growth driven by mid-to-large pack water and strong beverage sales [1][20] 2. **2025 Targets and Outlook**: - Plans to reignite growth in the water segment and enhance margins through cost efficiency - Focus on penetrating lower-tier cities and expanding consumption scenarios [1][18] - Beverage segment to emphasize tea, juice, and sports drinks, with new product launches [1][18] 3. **Margin Expansion**: - Expected margin expansion driven by increased in-house production ratio (aiming for 70% in 2025) - Cost benefits from renegotiated service fees and operating leverage [1][16][19] 4. **Shareholder Returns**: - Management aims to maintain or increase the common dividend payout ratio, currently at 45% for 2024 [1][16] Operational Highlights - **Market Share Growth**: Packaged water retail sales grew by 4.5% year-over-year in 2024, outpacing the industry [1][20] - **Capacity Expansion**: Added four new plants and retired nine legacy production lines, boosting total capacity by 21% [1][20] - **Channel Expansion**: Increased points of sale by 15% year-over-year to 2.5 million [1][21] Product Innovation - New product launches include family-sized water SKUs and various beverage lines, including herbal tea and sports drinks [1][21] Earnings Estimate Changes - **Revenue Forecasts**: Adjusted down by 4-5% for 2025-2027, reflecting enhanced margin expansion [1][22] - **EPS Growth**: Expected to grow from Rmb0.79 in 2025 to Rmb1.20 by 2027 [1][22] Risks and Considerations - **Competitive Landscape**: Potential for intensified competition in the bottled water market - **Raw Material Prices**: Fluctuations could impact margins - **Channel Management**: Uncertainty in distribution could affect sales [1][24] Conclusion - **Investment Rating**: Buy rating maintained with a target price of HK$19.00, based on a 19x 2026E P/E [1][23] - **Attractive Risk-Reward**: Stock offers high margin visibility and growth potential despite slight downward adjustments in sales forecasts [1][17]

Investment Rating - The report assigns a "Buy" rating for China Resources Beverage (02460) with a target price of 18.75 HKD, indicating an expected increase of over 15% relative to the market index in the next six months [1][6][12]. Core Insights - China Resources Beverage achieved a revenue of 13.521 billion CNY in 2024, a slight increase of 0.05% year-on-year, while the net profit attributable to shareholders rose by 23.12% to 1.637 billion CNY. The company declared a total cash dividend of 1.158 billion CNY, with a payout ratio of 70.77% [3][4][7]. - The company’s packaging water business recorded a revenue of 12.124 billion CNY, a decline of 2.6% year-on-year, while the second-line beverage business grew by 30.8% to 1.4 billion CNY, contributing 10.3% to total revenue [4][5]. - The gross margin improved by 2.6 percentage points to 47.3%, driven by increased self-owned production capacity and reduced outsourcing costs [5][6]. Summary by Sections Financial Performance - In 2024, the company reported total revenue of 13.521 billion CNY and a net profit of 1.637 billion CNY, with respective growth rates of 0.05% and 23.12% [3][7]. - The projected revenues for 2025, 2026, and 2027 are 14.453 billion CNY, 15.261 billion CNY, and 16.075 billion CNY, with expected growth rates of 7%, 6%, and 5% respectively [6][7]. Business Segments - The packaging water segment accounted for 89.7% of total revenue, with a notable decline in small-sized products due to competitive pricing pressures, while larger-sized products saw an increase in revenue by 8.6% [4][5]. - The second-line beverage segment is expected to continue its growth trajectory, with new product launches aimed at expanding consumer reach [4][6]. Operational Efficiency - The company has improved its operational efficiency, leading to a significant reduction in production costs and an increase in net profit margin to 12.1% [5][6]. - The self-owned production capacity is projected to increase to over 60%, further enhancing profitability [6].

Investment Rating - The report assigns a "Buy" rating to China Resources Beverage (02460) with a target price of HKD 18.75, indicating an expected increase of over 15% relative to the market index in the next six months [1][6][12]. Core Insights - China Resources Beverage achieved a revenue of HKD 13.521 billion in 2024, a slight increase of 0.05% year-on-year, while the net profit attributable to shareholders rose by 23.12% to HKD 1.637 billion. The company declared a total cash dividend of HKD 1.158 billion, with a payout ratio of 70.77% [3][4][5]. - The company’s packaging water segment saw a revenue decline of 2.6% to HKD 12.124 billion, accounting for 89.7% of total revenue, while the second-line beverage business grew by 30.8% to HKD 1.4 billion, representing 10.3% of total revenue [4][5]. - The gross margin improved by 2.6 percentage points to 47.3%, driven by increased self-owned production capacity and reduced outsourcing costs. The net profit margin also increased by 2.3 percentage points to 12.1% [5][6]. Summary by Sections Financial Performance - In 2024, the company reported total revenue of HKD 13.521 billion and a net profit of HKD 1.637 billion, with respective growth rates of 0.05% and 23.12% [3][7]. - The projected revenues for 2025, 2026, and 2027 are HKD 14.453 billion, HKD 15.261 billion, and HKD 16.075 billion, with growth rates of 7%, 6%, and 5% respectively [7][9]. Market Position and Strategy - The company is focusing on enhancing its market presence in the large packaging water segment, which has shown a revenue increase of 8.6% year-on-year, while small packaging products faced a decline due to competitive pricing [4][5]. - The introduction of new products, such as the "Zhi Ben Qing Run" series, has significantly boosted sales, with a 122% increase in volume for this product line [4][6]. Operational Efficiency - The report highlights that internal efficiency improvements have led to a decrease in unit production costs, contributing to a notable increase in profitability [5][6]. - The company plans to further enhance its production capacity and reduce logistics costs by expanding its distribution network and optimizing transportation methods [6][9].

Investment Rating - The report maintains a "Buy" investment rating for the company [1][8] Core Views - The company reported a slight revenue growth of 0.05% and a net profit increase of 23.12% for 2024, with revenues and net profits reaching 13.521 billion and 1.637 billion respectively [4] - The gross margin improved to 47.31%, up by 2.66 percentage points, attributed to increased production from self-owned factories and reduced raw material costs [4] - The beverage business saw significant growth, with revenue increasing by 30.80%, while packaged drinking water revenue declined by 2.59% [5] - The company is actively expanding its national presence and increasing the proportion of self-owned production, aiming for over 60% self-owned capacity by the end of the current five-year plan [6] Financial Performance Summary - For 2024, the company expects revenues of 13.521 billion, with projected growth rates of 6.8%, 7.5%, and 7.7% for the years 2025 to 2027 [10] - The earnings per share (EPS) are projected to be 0.84, 0.97, and 1.12 for 2025, 2026, and 2027 respectively, with corresponding price-to-earnings (P/E) ratios of 16, 14, and 12 [8][10] - The company’s return on equity (ROE) is expected to remain stable around 14.5% to 15.1% over the forecast period [10] Market Position and Strategy - The company is focusing on enhancing its distribution channels, with a 15% increase in retail coverage and over 20% growth in commercial refrigeration units [6] - New product launches and flavor innovations are driving the beverage segment, with a 122% increase in sales volume for a key product line [5][8] - The company is also investing in expanding production capacity, adding 22 new production lines, which includes 14 high-speed water lines and 3 sterile beverage lines [6]

Financial Performance - Total revenue for the year ended December 31, 2024, was RMB 13,521,246 thousand, a slight increase from RMB 13,514,728 thousand in 2023, representing a growth of 0.05%[3] - Profit attributable to owners of the company for 2024 was RMB 1,636,694 thousand, up 23.1% from RMB 1,329,341 thousand in 2023[3] - Basic earnings per share increased to RMB 0.79 in 2024 from RMB 0.66 in 2023, reflecting a growth of 19.7%[3] - Gross profit for the year was RMB 6,397,264 thousand, an increase from RMB 6,035,214 thousand in 2023, indicating a growth of 6.0%[5] - The company reported a total comprehensive income of RMB 1,707,931 thousand for 2024, compared to RMB 1,331,322 thousand in 2023, marking a significant increase of 28.4%[8] - The company reported a net profit of RMB 1,636,694,000 for the year 2024, compared to RMB 1,329,341,000 in 2023, reflecting an increase of 23%[29] - The company's net profit increased by 24.7% to RMB 1,660.8 million in 2024, with a net profit margin rising from 9.9% in 2023 to 12.3%[70] Dividends - The company proposed a final dividend of RMB 0.307 per share and a special dividend of RMB 0.176 per share for 2024, compared to no dividends in 2023[3] - The company declared a dividend of RMB 2.5 billion based on retained earnings as of December 31, 2023, with an additional proposed final dividend of RMB 0.307 per share and a special dividend of RMB 0.176 per share for the year ending December 31, 2024[28] - The board proposed a final dividend of RMB 0.307 per share and a special dividend of RMB 0.176 per share for the year ending December 31, 2024, subject to shareholder approval[92] Assets and Liabilities - Non-current assets increased to RMB 6,733,665 thousand in 2024 from RMB 7,443,777 thousand in 2023, a decrease of 9.5%[10] - Current assets rose to RMB 11,960,629 thousand in 2024, up from RMB 5,557,977 thousand in 2023, representing a growth of 115.0%[10] - The company’s total equity increased to RMB 11,861,274 thousand in 2024 from RMB 7,372,773 thousand in 2023, reflecting a growth of 60.5%[11] - The company’s cash and cash equivalents reached RMB 5,700,765 thousand in 2024, significantly up from RMB 2,074,698 thousand in 2023, indicating a growth of 174.5%[10] - Trade payables decreased from RMB 816,914 thousand in 2023 to RMB 625,295 thousand in 2024, indicating improved cash flow management[33] - The company's bank borrowings decreased significantly from RMB 42.5 million in 2023 to RMB 2.4 million in 2024[68] Revenue Breakdown - Sales of packaged drinking water amounted to RMB 12,124,048,000, while beverage sales reached RMB 1,397,198,000 for the year 2024[19] - Revenue from packaged drinking water products accounted for 89.7% of total revenue, amounting to RMB 12,124.0 million, which represents a decline of 2.6% year-on-year[38] - Beverage products generated revenue of RMB 1,397.2 million, reflecting a significant growth of 30.8% compared to the previous year, and accounted for 10.3% of total revenue[39] - Over 99% of the company's revenue and operating income is derived from customers located in mainland China[20] Cost Management - The cost of goods sold for the year was RMB 7,027,630,000, compared to RMB 7,394,539,000 in 2023, showing a reduction of 4.97%[27] - Sales costs decreased by 4.8% to RMB 7,124.0 million in 2024, primarily due to an increase in products produced in-house and a decline in raw material prices[59] - Interest income from bank deposits was RMB 167,520,000 in 2024, down from RMB 178,740,000 in 2023, indicating a decrease of 6.8%[23] - The company's financial costs decreased significantly from RMB 42,516,000 in 2023 to RMB 2,441,000 in 2024, a reduction of approximately 94.25%[24] Production and Capacity - In 2024, the company increased its overall production capacity by 21% compared to 2023, adding 22 new production lines and enhancing production autonomy and stability[51] - The company launched several new products in 2024, including "Zhi Ben Qing Run" sour plum soup and "Guihua Oolong Milk Tea," enriching its product matrix[53] - The company has implemented a unified bottle preform allocation operation plan, significantly increasing the self-sufficiency rate of bottle preforms by the end of 2024[51] Market Strategy - The company is actively investing in channel and market resources to strengthen its market position amid increasing competition and changing consumer habits[37] - The company aims to strengthen its market position along the Yangtze River and achieve rapid growth in the northwest market, focusing on enhancing channel distribution levels and modern channel business[45] - The company has adopted a regional development strategy to consolidate its market leadership and break the north-south disparity, particularly enhancing its presence in the Yangtze River region[45] - The company has established long-term partnerships with top sports IPs, enhancing brand influence through sports marketing initiatives[48] - The company has focused on targeted marketing strategies on mainstream internet platforms, effectively increasing conversion rates among high-attention demographics[47] Research and Development - Research and development costs decreased from RMB 61.5 million in 2023 to RMB 53.4 million in 2024[67] - The company plans to enhance its product R&D capabilities, allocating 3% of the net proceeds, which amounts to RMB 156.4 million, with RMB 8.5 million already utilized[90] Corporate Governance - The company has adhered to all applicable corporate governance code provisions since its listing date until December 31, 2024[97] - The company has established an audit committee consisting of two non-executive directors and four independent non-executive directors to oversee financial reporting and risk management[100] - The audit committee has reviewed the consolidated financial statements for the year ending December 31, 2024, ensuring compliance with applicable accounting standards[100] - The group's auditor, Deloitte, confirmed that the financial data disclosed in the preliminary announcement aligns with the audited financial statements for the year ending December 31, 2024[101] Future Plans - The company plans to launch new sports and coffee beverage products in 2025, enhancing its product portfolio[42] - The company has no current plans for potential investments and acquisitions, with RMB 417.1 million allocated for this purpose remaining unutilized[90] - The company has no plans for significant investments or acquisitions beyond those disclosed in the prospectus[79]

Investment Rating - The report assigns a "Buy" rating for the company [2][8]. Core Insights - The company has a solid foundation in the bottled water industry, having been established in 1984 and becoming a market leader in Guangdong by 2006. It has expanded nationally and has a strong market presence with a significant share in the bottled water segment [3][15]. - The bottled water market in China is expected to grow, with a market size of 215 billion yuan in 2023, reflecting a 4% year-on-year increase. The company holds a 32.7% market share in the purified water segment, indicating its leading position [4][22]. - The company is focusing on increasing its self-production capacity, which is expected to enhance profitability. It has 13 owned factories and plans to expand production capacity significantly [5][22]. - The company is also investing in marketing and brand building, with a high sales expense ratio compared to industry peers, indicating a commitment to enhancing brand visibility [6][7]. Summary by Sections 1. Long-term Commitment to Bottled Water - The company has been deeply involved in the bottled water sector for 40 years, achieving significant market share and expanding its product offerings [3][15]. - In 2023, the company reported revenues of 13.564 billion yuan and a profit of 1.331 billion yuan, with year-on-year growth rates of 7.16% and 34.66%, respectively [3][15]. 2. Broad Market Demand and Competitive Advantage - The bottled water market is projected to grow, with a compound annual growth rate (CAGR) of 7% from 2018 to 2023, outpacing other segments in the soft drink market [4][22]. - The company benefits from economies of scale and a strong distribution network, which positions it favorably against competitors [4][5]. 3. Profitability and Growth Potential - The company has a gross margin of 44.66% and a net margin of 9.82% in 2023, indicating room for improvement in profitability compared to peers [25][26]. - The report forecasts revenue growth rates of 6.8%, 7.7%, and 8.2% for 2024 to 2026, with profit growth rates of 20.8%, 18.3%, and 16.3% for the same period [8][10]. 4. National Expansion and Channel Development - The company is actively expanding its distribution network, with a significant increase in the number of sales points and a focus on national coverage [6][22]. - The sales revenue from distributors and direct sales reached 119.23 billion yuan and 15.91 billion yuan, respectively, in 2023, showing a robust growth trajectory [6][22]. 5. Financial Projections and Valuation - The report projects earnings per share (EPS) of 0.67, 0.79, and 0.92 yuan for 2024 to 2026, with corresponding price-to-earnings (PE) ratios of 21, 18, and 15 [8][10].

Investment Rating - The report assigns a "Buy" rating for the company [2][8]. Core Views - The company has a solid foundation in the bottled water industry, with significant growth potential despite being established for over 40 years [3][15]. - The demand for packaged drinking water is broad, with leading companies maintaining stable advantages in the market [4][29]. - The company shows strong profitability elasticity and potential for platform growth in its beverage business [5][22]. - There is ample room for channel expansion and national coverage, with a focus on increasing the number of distribution points [6][7]. - The investment logic is based on short-term revenue growth driven by national expansion and long-term benefits from industry consolidation and increased product specifications [8][10]. Summary by Sections 1. Long-term Commitment to Bottled Water - Established in 1984, the company became the leading bottled water brand in Guangdong by 2006 and has since expanded regionally and nationally [3][13]. - In 2023, the company achieved revenues of 13.564 billion yuan and a profit of 1.331 billion yuan, reflecting year-on-year growth of 7.16% and 34.66% respectively [3][15]. 2. Broad Market Demand and Leading Position - The packaged drinking water market reached 215 billion yuan in 2023, growing by 4% year-on-year, with a CAGR of 7% from 2018 to 2023 [4][29]. - The company holds a 32.7% market share in the purified water segment, establishing itself as a market leader [4][5]. 3. Profitability and Growth Potential - The company’s revenue from packaged drinking water and beverages in 2023 was 12.447 billion yuan and 1.068 billion yuan, respectively, with a gross margin of 46% for water products [5][22]. - The self-production ratio is increasing, which is expected to enhance profitability [5][22]. 4. Channel Expansion and Marketing - The company has a significant sales force and a growing number of distribution points, with 8,700 sales personnel and 3,938 secondary distributors covering 2 million terminal points [6][7]. - Marketing efforts are focused on brand image and sports partnerships, with a high sales expense ratio maintained at 30%-33% [7][22]. 5. Profit Forecast and Valuation - Revenue growth is projected at 6.8%, 7.7%, and 8.2% for 2024-2026, with profit growth at 20.8%, 18.3%, and 16.3% respectively [8][10]. - The expected EPS for 2024-2026 is 0.67, 0.79, and 0.92 yuan, with corresponding PE ratios of 21, 18, and 15 times [8][10].

Investment Rating - The report assigns an "Outperform" rating to CR Beverage, with a target price of HKD 17.50, indicating an expected return above 10% over the next 12 months [5][10]. Core Insights - CR Beverage is expected to benefit from a dual-driven revenue growth strategy focusing on national expansion and market penetration, with a projected compound annual growth rate (CAGR) of 3.5% for its packaged water segment from FY24 to FY26 [1][9]. - The company plans to enhance its gross margin from 44.7% in FY23 to 49.0% in FY26 by increasing its self-production ratio from approximately 50% in 1H24 to 70% in FY26, supported by a planned investment of 4.3 billion RMB in capacity construction [2][9]. - Adjusted net profit is forecasted to grow at a CAGR of 16.8% from FY24 to FY26, driven by the expansion of self-production facilities and a strong brand presence [2][9]. Summary by Sections Revenue and Profit Forecast - Revenue (in million RMB) is projected to grow from 12,623 in 2022 to 16,443 in 2026, with year-on-year growth rates of 11.3%, 7.1%, 5.3%, 7.0%, and 8.1% respectively [3]. - Net profit (in million RMB) is expected to increase from 990 in 2022 to 2,067 in 2026, with growth rates of 15.3%, 34.3%, 22.3%, 16.3%, and 9.3% [3]. - Diluted earnings per share (in RMB) are forecasted to rise from 0.49 in 2022 to 0.86 in 2026, reflecting similar growth trends [3]. Valuation Metrics - The price-to-earnings (P/E) ratio is projected to decrease from 23.3 in 2022 to 14.4 in 2026, indicating a more attractive valuation over time [3]. - The expected dividend per share (in HKD) is set to increase from 0 in 2023 to 0.28 in 2026, with corresponding yields rising from 1.6% to 2.1% [3]. Market Position and Strategy - CR Beverage holds an 18.4% market share in China's packaged water market, ranking second, with significant growth potential in northern and central-western regions [1]. - The company aims to deepen its market penetration in lower-tier cities and enhance retail network coverage, which is expected to drive market share growth [1].

Investment Rating - The report initiates coverage with an "Outperform" rating, expecting a return above 10% over the next 12 months [5][10]. Core Insights - CR Beverage is positioned to benefit from national expansion and market penetration strategies, which are expected to drive revenue growth [9]. - The company plans to improve its gross margin by increasing its self-production ratio from approximately 50% in 1H24 to 70% by FY26F, which will enhance cost control and product quality [2]. - The target price for CR Beverage is set at HKD 17.50, based on a 20x FY25F price-to-earnings ratio, reflecting the average valuation of the Chinese beverage sector [2]. Revenue and Profit Forecast - Revenue projections for CR Beverage are as follows: - FY23: RMB 13,515 million - FY24: RMB 14,224 million - FY25: RMB 15,217 million - FY26: RMB 16,443 million - The compound annual growth rate (CAGR) for revenue from FY24 to FY26 is estimated at 3.5% [3]. - Net profit forecasts are: - FY23: RMB 1,329 million - FY24: RMB 1,626 million - FY25: RMB 1,891 million - FY26: RMB 2,067 million - The CAGR for adjusted net profit from FY24 to FY26 is projected at 16.8% [3]. Market Position and Strategy - CR Beverage holds an 18.4% market share, ranking second in China's packaged water market, with significant growth potential in northern and central-western regions [1]. - The company aims to enhance its market presence by deepening penetration in lower-tier cities and expanding retail network coverage [1][2].

Investment Rating - The investment rating for the company is "Buy" [1] Core Views - The report highlights that the company is currently undervalued due to market pessimism, with growth potential driven by national expansion, platform development, and self-production [9][10] - The company has a strong market position in the bottled water sector, with its main brand "Yibao" showing resilience during price wars and gaining market share [10][39] - The beverage segment is at a turning point, with significant growth in revenue and market share, indicating potential for further expansion [49][50] Financial Summary - Revenue projections for the company are as follows: - 2023A: 13,515 million RMB - 2024E: 14,526 million RMB (YoY +7.5%) - 2025E: 15,747 million RMB (YoY +8.4%) - 2026E: 17,103 million RMB (YoY +8.6%) [6] - Net profit forecasts are: - 2023A: 1,329 million RMB - 2024E: 1,625 million RMB (YoY +22.3%) - 2025E: 1,965 million RMB (YoY +20.9%) - 2026E: 2,275 million RMB (YoY +15.8%) [6] - The company’s return on equity (ROE) is projected to be 19.3% in 2023, decreasing to 12.4% in 2024, and stabilizing at 13.1% from 2025 onwards [6] Growth Logic - The company’s growth logic is based on three main pillars: 1. **National Expansion**: The company has successfully increased its market share in the bottled water segment despite industry price wars, with a focus on expanding into northern regions [10][23] 2. **Platform Development**: The beverage business is experiencing rapid growth, with a significant increase in revenue and market share, indicating a successful transition to a multi-product platform [49][50] 3. **Self-Production**: The company aims to enhance profitability through increased self-production rates, which are expected to improve gross and net profit margins significantly [10][39] Market Position - The company holds a strong competitive position in the bottled water market, ranking second after Nongfu Spring, with a market share of 18.4% in the bottled water segment and 32.7% in the pure drinking water segment [11][20] - The bottled water market in China is projected to grow at a CAGR of 7.9% over the next five years, driven by increasing consumer awareness of drinking safety and the expansion of home consumption scenarios [16][20] Beverage Segment Performance - The beverage segment has shown impressive growth, with revenue increasing by 37% in 2022, 49% in the first half of 2023, and projected to maintain a strong growth trajectory [49][50] - The introduction of new products, such as herbal teas and flavored drinks, has contributed to the rapid expansion of the beverage segment, which now accounts for over 10% of total revenue [49][50]