CHINA RESOURCES BEVERAGE(2460.HK)：FY24 RESULTS SLIGHTLY MISSED;CORE INVESTMENT NARRATIVES INTACT-格隆汇

机构：中银国际
研究员：Andy CHEN

　　The Company recorded 23% YoY net profit growth, slightly missing our expectation. Core investment narratives, incl. 1) margin expansion and 2) non-water beverages business as a second growth curve, stay intact. Specifically, GPM rose 2.6ppts YoY to 47.3% in 2024, narrowing the gap with the industry’s benchmark player. Its non-water beverages grew at a CAGR of nearly 40% over the past two years, in terms of sales value. Maintain BUY rating.
　　Key Factors for Rating
　　FY24 sales missed, while profit margins basically in-line. In 2024, CR Beverage’s total revenue stayed flat YoY at RMB13.5bn, 6% lower than BOCIe. Shareholders’ profit was up 23% YoY to RMB1,637m, 2% lower than BOCIe. By category, robust growth in beverages (+30.8% YoY) offset the deterioration in packaged drinking water products (-2.6% YoY). Overall GPM rose 2.6ppts YoY to 47.3%, thanks to 1) increased proportion of products made in its self-owned factories, 2) more favourable fee rates of CMPs, 3) extension along production value chain, 4) cost tailwinds (PET, cardboard), plus optimisation of packaging. S&D expenses ratio was roughly flat YoY at 30.0%. The Company proposed to pay final DPS of RMB0.307 (equiv. to a payout ratio of 45%), plus a special DPS of RMB0.176.
　　Packaged drinking water could return to positive YoY growth in 2025. In 2024, by subcategory, CR Beverage’s small-sized, medium- to large-sized and barreled water products changed -8.9%, +8.6% and +0.2% YoY to RMB7,028m, RMB4,607m and RMB489m, respectively, in terms of sales value. According to the management, its packaged drinking water RSV in total achieved YoY growth of 4.5%, outpacing industry average’s 2.5% and its main competitors. Looking ahead, the management expects to drive positive volume growth in 2025, with relatively stabilised pricing system in general.
　　Beverages expected to sustain robust growth momentum. In 2024, Zhi Ben
　　Qing Run recorded 122% YoY in terms of sales volume, and its RSV reached nearly RMB2bn, largely increasing its market presence. The Company launched 1L- and 1.5L-sized products and new flavours (e.g. sour plum) to expand SKUs under Zhi Ben Qing Run. In the meantime, Zhi Ben Qing Run adopted publicity form of brand ambassadors, and also reinforced brand exposure through media placements (e.g. buses, airport display screens, TVC TV ads). The management now feels more optimistic about its sports drink “Mulene”, with upgraded visual appearance, packages (e.g. 1L-sized bottle, sport-cap bottle), and flavours (e.g. lemon, grapefruit), which is about to deliver explosive growth from 2025 onwards.
　　Improving production efficiency. According to the management, the output from self-owned factories will account for nearly 70% of its total output by 2025 (2024: >50%). Coupled with continuous adoption of new initiatives (e.g. in-house injection molding), as well as disciplined control of CMP services (e.g. c.20% cut in fee rates for 2024 vs. 2023), this will combine to reduce unit cost. Also, input cost tailwinds may continue in 2025, since YTD average price of PET fell 13% YoY, as at 20 March. On the other hand, CR Beverage’s GPM could be diluted by 1) likely weakened ASP, esp. for packaged drinking water, and 2) increased sales proportion from beverages (typically with lower GPM, compared with its packaged drinking water). As a whole, we forecast its GPM to go up 0.8/0.5/0.4ppt YoY in 2025-27.
　　Key Risks for Rating
　　Risks: 1) intensified price-based competition in packaged drinking water market; 2) unsuccessful new product development; and 3) weaker-than-expected overall consumption sentiment.
　　Valuation
　　We revised down our top-line forecasts for 2025-26 by 9%/11%, mainly to factor in lower ASP assumptions for packaged drinking water in the still competitive environment. CR Beverage’s margin expansion narrative stays intact, so we fine- tuned our profitability forecasts for 2025-26. Overall, we revised down our bottom- line forecasts for 2025-26 by 8%/11%.
　　Our new TP of HK$17.20 is based upon 20.0x 25E P/E, which is 1) similar to the Peers Group’s average 25E P/E, 2) at a 28% discount to Nongfu Spring’s 25E P/E, and 3) at a 5% discount to the mid-point value from our DCF simulation. Maintain BUY rating.