FY25: Strong tea & juice biz; facing challenges to maintain high growth

FFY25:Strong tea & juice biz; facing challengesto maintain high growth Target PriceHK$60.88(Previous TPHK$57.75)Up/Downside31.1%Current PriceHK$46.42 Nongfu Spring’sFY25 revenuewasup 22.5% YoY to RMB 52.6bn, 4% aboveBloomberg consensus, and net profitwasup 30.9% YoY to RMB 15.9bn,beatBloomberg consensusby6%, supported by recovery in waterbiz, stronger-than-expected tea and juice results especially in 2H25, andsignificant SG&A declineposttheOlympic year. The company retained its FY26 double-digit revenuegrowth target but offered no gross marginor net profit guidance amid uncertainconditions. We forecast its 3-year forward(2026-28E)revenue and earningsCAGR at around 11%.Maintain BUYandraiseTPby5%to HK$60.88basedon:1) valuationbase rolledforwardto2026Efrom 2025E;2)target P/E multiplecut20%to 32x reflecting concerns over intensified competition andgeopoliticallydriven raw material price hikes;sentiment-wise,we believepositive results may be fully priced in, with weaksector sentiment likely weighingon sharesin FY26. China Consumer Staples Miao ZHANG(852) 3761 8910zhangmiao@cmbi.com.hk Stock Data Two cornerstonebusinessesshowedstrong growth amid intensifyingcompetition.1) Teabiz: Strong growth, deepening competition. SegmentFY25revenue+29%YoY(2H25+38%vs.1H25’s 20%,notablyaccelerating), driven by sugar-free tea’s scale expansion.Segment OPmargin +2.9ppt to 48.0%in FY25, but2H25margindown 0.6ppt vs. 1H25,indicating ongoing market competition intensification. 2) Waterbiz: Furtherrecoveryin 2H. Full-year revenue +17% to RMB18.7bn (2H25 +25%,notably faster than 1H25). Full-year OP margin +6.3ppt to 37.4%; 2H25 up4ppt from 1H25’s 35.4% to 39.4%, signalling furtherrecovery in2H. Juicebusinessisscaling up. Juicebizrevenuegrew27% YoY to RMB5.2bn, with 2H25 growth accelerating to 33% from 21% in 1H25, driven byrising consumer health awareness. Segment OP margin rose 9.4ppt to34.3% in FY25 (driven by mix shift and scale effects), with 2H25 up from1H25's 31.3% to 37.3%. As consumer pursuit of dietary health grows, thecompany's deep cultivation in the segment may continue to unlockthescaleeffectof juicebusiness, in our view. MaintainBUY.TPraised5% to HK$60.88given 1) valuation base changeto 2026E from 2025E;2)target P/E multiple cutby20%to 32xtoreflectpost-strong-performance concernson fundamentals, including 1) intensifiedcompetition in packaged water/beverage sector in 2026, and2) potentialcost pressure from PET/raw material price volatility due to geopolitics,posing challenges to sustaining high growth post stellar FY25 results; as wellastrading sentiment:1) 9.4% post-earnings stock surge may have fullypriced in positives; 2) potentially sluggish 2026 consumer environment couldweaken sector sentiment and drag sharesperformance.Giventhecompanyistheabsolute industry leader and one of thefew investable names in thesector, it mayattractliquidity concentration;thus wemaintainBUYrating. Source: FactSet Source:Company data,Wind,CMBIGMestimates(as of 25 Mar 2026) Disclosures& Disclaimers AnalystCertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, theanalyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to the date of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days after the date of issue of this report; (3)serve as an officer of any of the HongKong listed companies covered in thisreport; and (4) have any financial interests in the Hong Kong listed companies covered in this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 months: Stock with potential return of +15% to-10% overnext 12 months: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM HOLDSELL :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852) 3900 0800CMB InternationalGlobal MarketsLimited (“CMBIGM”) is a wholly owned subsidiary of CMB International CapitalCorporation Limited (a wholly ownedsubsidiary of China Merchants B