"China Resources Beverage Lists on HKEX, 90%+ Revenue from Packaged Water"

On October 23rd, China Resources Beverages (Holdings) Co., Ltd. (hereinafter referred to as "China Resources Beverages", 02460.HK) was officially listed on the main board of the Hong Kong Stock Exchange, becoming the 18th listed company under China Resources Group.

As of the closing of the trading day, the share price of China Resources Beverages was 16.68 Hong Kong dollars per share, with an increase of 15.03%, and the total market value of the company was 39.162 billion Hong Kong dollars.

According to its relevant announcements, in this IPO, China Resources Beverages globally offered 347.8 million shares, with an issue price of 14.50 Hong Kong dollars per share, raising a net amount of approximately 4.903 billion Hong Kong dollars. Among them, the number of shares publicly offered in Hong Kong accounted for 40% of the global offering, and was subscribed 234.49 times; the number of shares internationally offered accounted for about 60% of the global offering, and was subscribed 24.47 times.

Advertisement

"Selling water" is still a good business

Information from the prospectus shows that in the overall packaged drinking water market, in 2023, Nongfu Spring (09633.HK) had a market share of 23.6%, ranking first; China Resources Beverages had a market share of 18.4%, ranking second.

In fact, China Resources Beverages is the "pioneer" of the packaged drinking water industry. Public information shows that in 1990, its brand Yibao bottled purified water was born, relying on strong "ground promotion" strength, salespeople carried out "street sweeping" promotion in the streets and alleys. By 2007, the market share of Yibao bottled water in the Guangdong region had reached 50%. Until now, the Guangdong region is still its stronghold.

Financial report data shows that from 2021 to 2023 and for the four months ended April 30, 2024, China Resources Beverages achieved operating incomes of 11.34 billion yuan, 12.623 billion yuan, 13.515 billion yuan and 4.15 billion yuan respectively; among them, the income of Yibao brand packaged drinking water products accounted for 95.21%, 94.17%, 91.79% and 88.96% of the total revenue respectively.

However, in the first half of this year, the selling price of China Resources Beverages' packaged drinking water products has declined. The prospectus shows that for the four months ended April 30, 2024, the average selling price of the company's packaged drinking water products has decreased compared to the same period in 2023, mainly due to the change in the company's "packaged drinking water product mix, and the increase in discounts provided to customers (mainly distributors) under intense market competition".

Despite the increasingly fierce market competition, "selling water" is still a good business. The prospectus shows that the water sources of China Resources Beverages are mainly purchased from third-party water supply systems, with a small part being direct water sources (corresponding to natural mineral water). From 2021 to 2023, the net profits of China Resources Beverages were 858 million yuan, 989 million yuan and 1.331 billion yuan respectively, with corresponding return on net assets of 20.7%, 18.9% and 20.1%.

In addition, data from the consulting report shows that in 2023, the retail sales of Yibao brand's drinking purified water products reached 39.5 billion yuan, with a market share of 32.7%, ranking first in the domestic drinking purified water market, and exceeding the total retail sales of the second to fifth ranked purified water companies.Fundraising Accelerates Channel Expansion

It is worth noting that despite a decrease in selling prices, the gross margin of China Resources Beverage's packaged drinking water products has actually increased. From 2021 to 2023, the gross margin for sales of China Resources Beverage was 43.84%, 41.66%, and 44.66% respectively, while the net profit margin for sales was 7.57%, 7.83%, and 9.85% respectively.

Regarding the reason for the increase in gross margin, China Resources Beverage stated in its prospectus that it was mainly due to the reduction in the cost of raw materials and packaging materials, cost-saving and efficiency-enhancing measures, and an increase in the proportion of products produced by its own factories. As of April 30, 2024, China Resources Beverage has 13 operational self-owned factories and 31 cooperative production partners in China.

Data shows that more than 60% of China Resources Beverage's production capacity comes from cooperative production partners. At the same time, due to China Resources Beverage's production model that combines "self-owned factories with cooperative production partners," from 2021 to 2023, the company paid cooperative production partner service fees to contract manufacturers amounting to 1.992 billion yuan, 2.04 billion yuan, and 2.067 billion yuan respectively, accounting for 17.6%, 16.2%, and 15.3% of total revenue.

Additionally, China Resources Beverage has also made significant investments in marketing and promotion. From 2021 to 2023, the company's marketing and promotion expenses were 1.047 billion yuan, 963 million yuan, and 1.074 billion yuan respectively.

In fact, the expansion of product sales and promotion channels is also a direction that China Resources Beverage is working hard on. Information from the prospectus shows that the net proceeds from this IPO will mainly be used for the following purposes: strategic expansion and optimization of production capacity to improve overall supply chain efficiency; acceleration of sales channel expansion and enhancement of channel efficiency; conducting sales and marketing activities; strengthening product development capabilities to continuously expand new product categories and individual products; digital upgrading to improve operational efficiency; potential investment and acquisition opportunities; and for working capital and general corporate purposes.