亚太地区食品与饮料：中国功能性饮料-给予农夫山泉跑赢大市、东鹏饮料跑赢大盘评级

China Functional Beverages: Sweet dreams - initiating on NongfuSpring at Outperform and Eastroc Market-Perform We initiate on Nongfu Spring at Outperform with a HK$53 price target / 25% share priceupside, and Eastroc Beverage Group at Market-Perform with a RMB142 A-share pricetarget / 7% upside (as of June 11). If a sugar tax is introduced in China, we see c. 12%incremental upside on Nongfu and c. 35% incremental downside for Eastroc. Health-driven sugar reduction in China is structural, not cyclical, and this presents a compellingtailwind for Nongfu whose portfolio is focused on low/no sugar functional beverages.The company’s portfolio strategy is inherently margin accretive, and they are effectivelyleveraging national scale to drive new categories. Eastroc’s core skus are on the wrongside of the sugar trend, however, with 16% higher sugar than Coca-Cola and +34% vs thelargest standard RTD tea brands. While we see continued scope for rapid geographic andcategory expansion, we expect the company’s portfolio strategy to remain margin dilutive. Euan McLeish+81 3 5962 9611euan.mcleish@bernsteinsg.com Hao Wang, CFA+852 2123 2627hao.wang@bernsteinsg.com Mufei Gao+81 3 6777 6995mufei.gao@bernsteinsg.com Structural demographic changes in China, including fewer marriages, more upwardlymobile young women, and overall aging are driving consumers to become increasinglysugar avoidant, and this is being compounded by GLP-1 use and government policy. Theaverage sugar content of non-water soft drinks in China has declined from 9.9g/100ml in2001 to 9.2g in 2025, and we expect the trend to continue with the average sugar contentfalling to around 8.3g in 2030, or to 7.7g if a sugar tax is introduced. Our proprietary marketmodel indicates unsweetened RTD tea will be the primary beneficiary, with mid-teens to20% growth, while energy drink demand growth moderates to low-to-mid single digits. Weexpect mix substitution to zero sugar within the Energy segment to mix-neutral for Eastrocat best, but the transition is likely to open the door to share erosion. Nongfu has a diversified portfolio of functional beverages which command higher marginsthan their core water business. Nongfu already commands some of the highest EBITmargins in soft drinks globally (Tea 52%, Water 36%, overall 45%) and we expect midteens revenue growth to continue, compounded by steady mix driven margin expansion.Their Unsweetened RTD tea portfolio (50% segment share) is best placed to capitalizeon the low/no sugar trend, in our view, and we see 12% upside to our base case valuationif a sugar tax is introduced. We particularly like the high HHI market structure and thebarriers to entry in this segment. We expect Nongfu’s portfolio strategy to continue drivingpositive margin mix and for this, combined with scale leverage to more than offset PETprice headwinds with Nongfu delivering an 18% EPS CAGR through 2028. Our HK$53price target reflects 25% upside based on a 22.0x NTM+1 P/E multiple (as of June 11). Eastroc is squarely a mainstream player, focused on taking their core Energy brand nationaland expanding into new categories. While we expect both strategies to continue deliveringat the top line, we expect the impact to be increasingly impacted by headwinds from theno/low sugar trend. The company’s portfolio expansion strategy is inherently margindilutive, and we expect to see c. 40-100bps of Gross Margin pressure per annum, on topof 6-8%pt margin headwinds from PET prices. Overall we expect Eastroc to deliver a 17%net profit CAGR through 2028, with 5/84bps of margin dilution in 2026/7. Our RMB142A-share price target reflects 7% upside (as of June 11) based on a 15.7x NTM+1 P/E, andwe see 36% downside to the current share price if a Sugar tax is introduced in early 2027. BERNSTEIN TICKER TABLE INVESTMENT IMPLICATIONS We rate: •Nongfu Springs Outperformwith aPrice Target of HK$53per share. •We like Nongfu for its diversified portfolio of functional beverages, a strong track record of leveraging scale, and theirnational route to market to build new brands that command premium pricing. We particularly like Nongfu’s exposure tohigh HHI market segments where competitive dynamics are conducive to sustainable pricing. With the ongoing structuraldemographic changes in China driving the low/no-sugar trend, Nongfu’s leading position in the unsweetened RTD teasegment and spring water segment, plus its early positioning in the functional drinks segment, look set to be long-termtailwinds. •We expect Nongfu to deliver an 18% EPS CAGR through 2028, and our HK$53 price target reflects 25% upside basedon a 22.0x NTM+1 P/E multiple (as of June 11). •While we see a strong outlook for continued distribution expansion, we expect the pace to slow further and the newcost of new customer acquisition to increase. At the same time we expect to see increasing energy segment demandheadwinds from growing sugar aversion among consumers driven by demographic changes, GLP-1s, pu