CICC has published a research report, largely maintaining its 2026 net profit forecast for NONGFU SPRING at RMB 17.5 billion. Considering a better-than-expected product mix, the firm raised its 2027 net profit forecast by 3% to RMB 19.7 billion. The stock currently trades at 24x and 21x 2026/2027 P/E ratios. CICC maintains a target price of HK$61, corresponding to 35x and 31x 2026/2027 P/E ratios and implying 44% upside potential. The Outperform industry rating is reaffirmed. Key points from CICC are as follows:

2025 results exceeded the firm's expectations. The company disclosed 2025 performance: revenue reached RMB 52.6 billion, up 22.5% year-on-year, while net profit was RMB 15.87 billion, increasing 30.9% year-on-year. Adjusted net profit was RMB 16.0 billion, rising 32% year-on-year. Second-half 2025 revenue grew 30.0% year-on-year, with net profit surging 40.2% year-on-year. The net profit performance surpassed expectations, primarily due to a greater-than-expected improvement in gross margin and a larger-than-anticipated decline in the expense ratio.

Second-half 2025 revenue showed strong performance, with the no-sugar tea segment solidifying its leading position. Growth rates for packaged water, tea, functional beverages, and juice drinks in the second half of 2025 were +24.9%, +38.4%, +20.3%, and +32.5% year-on-year, respectively, indicating robust growth across all categories. Water sales recovered significantly from the low point in 2024, approaching the 2023 peak, with market share steadily rebounding. The no-sugar tea segment gained further momentum; the bottle-cap prize promotion launched in April 2025 yielded significant results, with the 1.5L sharing pack and new flavors like Tangerine Peel White Tea performing notably well. According to Nielsen data, the market share of Oriental Leaf further increased to 80% in 2025, continuously expanding its leading advantage. Benefiting from the strong performance of Shuirong C100 and 100% juice products, the juice business maintained high growth, while the functional beverage segment expanded in line with industry growth.

Profit margins reached a record high, reflecting continuously improving profitability. Benefiting from cost advantages and an enhanced product mix, the second-half 2025 gross margin increased by 3.4 percentage points year-on-year, and the sales expense ratio decreased by 2.5 percentage points year-on-year. This improvement was driven by optimized freight costs due to product mix upgrades and enhanced efficiency in advertising and promotion expenses. Second-half 2025 EBIT margins for water, tea, functional beverages, and juice increased by 9.4, 1.5, 3.2, and 11 percentage points year-on-year, respectively. The net profit margin for the second half of 2025 rose by 2.2 percentage points year-on-year, hitting a historical high and reflecting the company's superior cost and expense control capabilities.

The firm anticipates sustained steady revenue growth in 2026, with attention on changes in cost factors. For 2026, the firm is optimistic about the company's prospects for steady growth and long-term sustainability, driven by new product initiatives and increased marketing investment. Early in the year, the company launched a new electrolyte water product targeting daily hydration scenarios, which is expected to contribute incremental revenue. Monitoring the progress of categories such as canned tea and iced tea is also recommended. This year, the bottle-cap prize promotion has been expanded to cover more products, which is favorable for attracting new customers and encouraging repeat purchases across a wider range of categories. On the profit side, while PET prices have risen significantly recently, the company may have locked in PET prices for the first half of 2026, limiting short-term impact. The cost outlook for the second half of the year remains uncertain. However, given NONGFU SPRING's high profit margin level and the decreasing revenue contribution from packaged water, the company may possess stronger risk resilience.

Risk warnings include a substantial increase in raw material prices and intensifying competition.