CICC maintains NONGFU SPRING (09633) "outperform" rating and raises target price to HK$54.

Zhongjin released a research report stating that considering the strong momentum of NONGFU SPRING's sales, it has raised its profit forecast for 2025/2026 by 5%/7% to 14.7/16.8 billion RMB, corresponding to a P/E ratio of 32/28 times for 2025/2026. Considering the industry's valuation is on the rise, the target price has been raised by 35% to 54 Hong Kong dollars, corresponding to a P/E ratio of 38/33 times for 2025/2026 and a 20% upside potential, maintaining an outperform industry rating. The bank expects a year-on-year revenue increase of +18% in the first half of 2025, with profits increasing by 20%. Revenue growth has exceeded market expectations, mainly due to better-than-expected performance in tea drinks and fruit juices, while profit growth is in line with expectations. Key points from Zhongjin: Revenue growth potential is strong with a low base, and impressive performance in fruit juices and tea drinks. The bank expects a year-on-year revenue increase of +18% in the first half of the year, with double-digit growth in packaged water due to the low base affected by last year's public opinion. This year, the company's strategic focus is on the recovery of the Red Label Water market share, actively promoting channel profitability improvement, achieving good results, and restoring market share monthly; Modern channel data from Zhongjin supermarkets shows a +8.8% revenue increase in packaged water sales from January to May, outperforming the industry's 3.5% level, with a 2ppt increase in market share. The bank expects tea drinks, driven by Oriental Leaf, to record growth slightly exceeding 20%, with the introduction of Chenpi White Tea and Chrysanthemum Pu'er new flavors by Oriental Leaf in the first half of the year (regional markets), as well as a 1.5L packaging product, coupled with the effectiveness of opening win prizes promotions, resulting in an increase in sugar-free tea market share; Farmer's tea drinks in modern channels from January to May increased by 17.5%, with a 3.5% increase in market share, strengthening competitiveness. The bank expects fruit juice to grow by over 20% in the first half of the year, mainly driven by water-soluble C100, with 100% fruit juice also performing well, benefiting from increased consumer health consciousness; functional beverages and other products such as coffee and soda water increased by double digits year-on-year in the first half, overall, the company, after last year's public opinion impact, this year showed strong resilience through product strength, channel strength, and brand marketing, with increased market share. Profit margins continue to improve as raw material prices decline, profitability slightly better than revenue. Benefiting from the decline in PET prices and continuous product structure improvement, the bank expects the company's gross profit margin to continue to increase in the first half of 2025, while expenses are expected to remain stable with a slight decline in sales expenses, mainly due to the increase in the proportion of beverage income driving down transportation costs, while A&P expenses may slightly increase, and management expenses may increase slightly due to personnel incentives, but the bank expects overall Operating Profit Margin (OPM) to show an increasing trend. Considering the additional expenses such as donations from the Yunnan Tea Factory in the first half of the year, the bank expects the overall company's net profit margin to slightly increase, expecting a net profit year-on-year growth of +20%. Performance expected to continue to improve in the second half of the year, long-term competitive strength solidified. Considering the lower base in the second half of 2025, combined with the potential return of consumers due to public opinion events and the strong momentum of terminal sales, the bank believes that the company's revenue growth in the second half of the year is expected to improve. The bottled water business still lags behind 2023, but the trend of monthly market share increase is clear, and the bank judges that the impact of last year's public opinion may gradually fade. The bank expects sugar-free tea to grow by over 20% annually, with Oriental Leaf boosting repeat purchases through consumer opening win prize activities and continued strength through the introduction of new flavors and sizes, as well as fruit juices and functional beverages continuing to perform well. In the first half of the year, the company launched a new carbonated tea product, which the bank expects to perform better than previous products such as bottled tea and recommends observing its performance in the second half of the year. With increasing market competition, the company's product strength and channel strength to solidify, long-term competitive strength is consolidated.