In the past quarters, China’s overall RTD beverage demand was resilient but price-based competition looks quite intensified. Among major F&B giants, business outlook and stock price performance have been more divergent. Notably, during 3Q25, Nongfu’s share price surged 34.4% vs. Tingyi’s -9.4% and Uni-President China’s -13.5%. Going forward, we still like Nongfu’s higher visibility of sales growth and market share gain in such a competitive environment. We reiterate BUY rating, believing that Nongfu will be the long-term F&B winner.
Key Factors for Rating
Robust sales momentum in 3Q25. According to our recent expert call and channel check, Nongfu’s 3Q YoY sales growth should accelerate to above 20%, despite intensified competition esp. from freshly-made beverage store players. We project that its bottled drinking water, RTD tea, functional drinks, and juices will increase 16%, 22%, 14%, and 25% YoY, respectively, in 2025, surpassing most beverage players in China.
Bottled drinking water. In 9M25, Nongfu saw modest growth in market share, with FY25 sales KPI 100% completed. Its marketing strategy (e.g. product and packaging mix upgrade, consumer education on the importance of natural water sources), as well as channel execution, has proved to be successful. Remarkably, Nongfu has refocused on natural water SKUs, with its “red-bottle” sales volume up >20% YoY (“green-bottle”: down 10% YoY), on an YTD basis.
RTD tea. In 9M25, market share of Orient Leaf rose to 26%, while market share of Tea π stabilised at 11%. For Orient Leaf, its ex-factory price, wholesale price, and retail-selling price are RMB46, RMB55, and RMB75, respectively, on an avg. per box (500ml*15) basis, showing resilient pricing system and channel profit. Notably, in 3Q25, Nongfu introduced 1.5L-pack Orient Leaf in all channels, with positive feedback, which may further drive market share consolidation. Another driver is effective S&D investments (e.g. >300,000 increase in # of commercial refrigerators with “Orient Leaf” logo, “open cap & win a prize” campaigns, etc.).
More bullish on FY25 OPM expansion. Cost tailwinds continue in 3Q25 and Nongfu’s unit production cost would decrease MSD% YoY in 2025, regarding its procurement cycle. In addition, due to business leveraging, S&D expenses ratio improved largely YoY. To sum up, we expect Nongfu’s OPM to expand 3.7ppts YoY.
Key Risks for Rating
Risks: 1) weaker-than-expected RTD tea market size growth, 2) fiercer industry competition, 3) input cost inflation, and 4) reputation risk.
Valuation
For 2025-27: We lifted our top-line forecasts by 2%/5%/5% and GPM forecasts by 0.4ppt/0.5ppt/0.5ppt. We also raised our net profit forecasts by 5%/8%/9%.
Reiterate BUY. Nongfu is more likely to be the long-term winner, with wide moat (rooted in robust brand power, diversified product matrix, innovation, execution excellence in distribution and in-house organisational management), which can justify a valuation premium over the HK-listed F&B peers.
Our DCF-based TP of HK$60.60 implies 35x 26E P/E.