Eastroc Beverage(SH:605499)2025-09-28 14:57Summary of China Beverages Conference Call Industry Overview - The report focuses on the China Beverages industry, particularly the ready-to-drink (RTD) segment and competition from freshly-made drinks (FMD). - The covered China Beverages names have outperformed the MSCI China Staples Index, with an average increase of approximately 20% YTD compared to 17% YTD for the index [1][4]. Key Insights and Arguments - Cautious Outlook: The company adopts a more selective stance in the beverage sector due to rising competition and cautious pricing trends expected into 2026. Increased promotions and a shift towards larger pack sizes are anticipated by the end of 2025 [1][4]. - Top Picks: Eastroc is highlighted as a top pick due to its potential for market share gain and portfolio expansion, supported by strong channel execution and resilience against FMD competition [1][4]. - Nongfu's Performance: Nongfu is expected to recover market share in packaged water, with an estimated 80%+ market share in the sugar-free tea segment by the end of this year, up from 65%-70% in 2024 [1][4]. - Earnings Adjustments: Earnings for UPC and Tingyi have been adjusted down by 3%-8% and 1%-3% respectively for 2025E-27E due to slower sales growth trends. Conversely, Nongfu's earnings have been revised up by 0.2%-1.7% for the same period [1][4]. Competitive Landscape - FMD Competition: The competition from FMD brands is intensifying, particularly in 3Q. The impact on RTD beverages is more pronounced than previously expected, with a projected 3% volume hit to bottled beverages for the full year 2025 [1][6]. - Promotional Pressure: Increased promotions have led to weakened pricing for RTD drinks, with a narrowing price gap between RTD and mass-market FMD [1][8]. - Market Dynamics: Historical brand disputes in the beverage industry have shown long-lasting negative impacts on sales and market share dynamics, providing opportunities for competitors to gain market share [1][7][13]. Financial Projections - Earnings Growth Expectations: Expected year-over-year earnings growth for Nongfu/Eastroc/Tingyi/UPC in 2H25 is 29%/35%/7%/17% respectively, while CR Beverage is projected to see a 49% earnings decline [1][4]. - Cost Trends: Anticipated 3%-6% unit cost deflation in 2025 is expected to lead to 2.0-3.3ppt gross profit margin (GPM) expansion. However, cost benefits are moderating, particularly in PET/sugar [1][24][25]. Additional Insights - Wahaha Brand Dynamics: The potential launch of a new brand "Wa Xiao Zong" by Hongsheng Group in 2026 could shift market dynamics in the bottled water segment, particularly affecting Wahaha's market share [1][16][17]. - Scenario Analysis: The report includes scenario analyses predicting potential market share movements for Nongfu and CR Beverage based on the dynamics surrounding the Wahaha brand dispute [1][20][21]. Conclusion - The China Beverages industry is facing heightened competition and changing market dynamics, particularly from FMD brands. Companies like Eastroc and Nongfu are positioned to capitalize on these changes, while others like UPC and Tingyi may face challenges. The financial outlook remains cautiously optimistic, with adjustments made to earnings forecasts reflecting the competitive landscape.