NONGFU SPRING(09633) 西南证券·2024-08-29 11:46Investment Rating - The report maintains a "Buy" rating for Nongfu Spring (9633 HK) with a target price of HKD 34 20 [1] Core Views - Nongfu Spring achieved revenue of RMB 22 17 billion in H1 2024, a YoY increase of 8 4%, and net profit attributable to shareholders of RMB 6 24 billion, up 8 0% YoY [2] - The packaging water segment faced pressure due to negative public opinion, with sales dropping 18 3% YoY to RMB 8 53 billion, while tea beverages surged 59 5% YoY to RMB 8 43 billion, driven by the health and low-sugar trend [2] - Gross margin declined by 1 4 percentage points to 58 8% in H1 2024, mainly due to promotional activities for new products and rising costs [2] - The company launched a green-bottled purified water product in April 2024, enhancing its competitiveness in the packaged water market [2] - Nongfu Spring is expected to achieve net profits of RMB 13 56 billion, RMB 16 28 billion, and RMB 18 95 billion in 2024, 2025, and 2026, respectively, with EPS of RMB 1 21, RMB 1 45, and RMB 1 68 [2] Business Segment Analysis Packaged Water - Sales revenue for packaged water in H1 2024 was RMB 8 53 billion, down 18 3% YoY, accounting for 38 5% of total revenue [2] - The decline was primarily due to negative public opinion and malicious attacks on the company and its founder in late February 2024 [2] - The green-bottled purified water product is expected to drive future growth in this segment [2] Tea Beverages - Tea beverage sales grew 59 5% YoY to RMB 8 43 billion, driven by the popularity of low-sugar and healthy products like Oriental Leaf and Tea π [2] - New flavors and product specifications for Oriental Leaf were introduced, further solidifying its market position [2] Functional Beverages - Functional beverage sales increased 3 8% YoY to RMB 2 55 billion, with new flavors of Scream and Vitamin Water targeting the youth market through collaborations with outdoor and street dance events [2] Juice Beverages - Juice beverage sales rose 25 4% YoY to RMB 2 11 billion, supported by product upgrades and new flavor expansions for brands like Nongfu Orchard and Water Soluble C100 [2] Other Products - Sales of other products declined 7 2% YoY to RMB 550 million, as the company focused on operational efficiency and key product categories [2] Financial Forecasts - Revenue is projected to grow to RMB 47 59 billion, RMB 55 53 billion, and RMB 62 41 billion in 2024, 2025, and 2026, respectively, with YoY growth rates of 11 5%, 16 7%, and 12 4% [2][6] - Net profit margins are expected to remain strong at 28 1% in 2024, with slight improvements in subsequent years [2] - The company's ROE is forecasted to be 19 6%, 14 47%, and 11 95% for 2024, 2025, and 2026, respectively [2] Valuation - The report values Nongfu Spring at 26x PE for 2024, translating to a target price of HKD 34 20 based on a 0 92:1 exchange rate [2][8] - Comparable companies include Dongpeng Beverage, Xiangpiaopiao, and Uni-President China, with average PE multiples of 20x, 17x, and 14x for 2024, 2025, and 2026, respectively [8][9]