Company Reports

Nongfu Spring's first-half revenue rose 16%, and profit rose 17%. Ready-to-drink tea grew 30% and has now passed packaged water as the largest business, while water grew 2% in a market where volumes fell. The company maintained its full-year target of double-digit growth in both sales and profit.

We review our 2026 forecasts for Tingyi and Nongfu Spring ahead of their interim results in August.

Nongfu Spring upholds its market leadership in the packaged water sector in China through a scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink beverages such as tea, functional, and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. The company has expanded its tea segment in recent years, led by sugar-free products.

Nongfu Spring's 2025 revenue and net profit increased by 23% and 31% year on year, respectively, supported by solid nonwater beverages sales, input costs tailwind, and operating leverage. Management maintained a 70% dividend payout ratio, unchanged from 2024.

Amid China’s slowing economic growth, Nongfu Spring has maintained its leadership in packaged water, supported by its scalable production and distribution network, while expanding into nonwater ready‑to‑drink categories such as tea and juice.

Nongfu Spring upholds its market leadership in the packaged water sector in China through a scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink beverages such as tea, functional, and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. The company has expanded its tea segment in recent years, led by sugar-free products.

Nongfu Spring reported first-half 2025 results with revenue and net profit growing 16% and 22% year on year, respectively, driven by strength in its ready-to-drink tea and juice segments. Margin expansion was supported by favorable input costs and operating leverage.

Nongfu Spring upholds its market leadership in the packaged water sector in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

We review our 2025 revenue and net profit forecasts for Nongfu Spring ahead of its interim results release in August.

Nongfu Spring upholds its market leadership in the packaged water sector in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

While narrow-moat Nongfu Spring’s 2024 revenue trailed our estimate by 8%, net income was consistent with our forecast, thanks to the company's effective cost controls. Weaker-than-expected top-line growth was due to a 21% year-on-year decline in the water segment’s revenue in the second half and was attributed to excess channel inventory. On the other hand, ready-to-drink tea became the largest revenue driver for the company in 2024, continuing to deliver robust top-line growth of over 30%.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

We review our earnings assumptions for narrow-moat Nongfu Spring and slightly reduce our 2025-28 revenue and net income estimates by 2%-3%, while keeping our 2024 forecasts. The revisions are mainly due to lower top-line growth and gross margin expectations for the water segment in 2025, given the ramp-up of the lower-priced pure water lineup as an alternative for price-conscious consumers. We think the cheaper offerings could help Nongfu gain market share in the near term, following the online backlash against the company in the first half of 2024. However, we believe Nongfu Spring would avoid cannibalizing demand for its natural water lineup in the long run. We think the ready-to-drink tea segment should continue to outperform the water segment in 2024 and beyond. We retain our fair value estimate of HKD 39.50 per share, which implies 31 times 2025 price/earnings and 18 times enterprise value/EBITDA. We see shares as fairly valued.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

Narrow-moat Nongfu Spring’s 2024 interim results were mixed, with revenue missing our expectation, but net profit exceeded our forecast due to successful cost control. Water segment sales were still dragged by the consumer backlash that has been continuing since March, which more than offset strong momentum in the tea and juice categories. The company-level gross margin was also adversely affected by the declining volume of packaged water and contracted 1.4 percentage points year on year to 58.8%. Positively, the company still delivered over 28% net margin for the period, thanks to higher-margin tea products. We reduce our 2024-28 net income forecasts by 5%-6% to account for lower revenue and gross margin assumptions. Consequently, we cut our fair value estimate to HKD 39.50 per share from HKD 42.50.

We moderately lower our 2024 earnings forecasts for narrow-moat Nongfu Spring ahead of the release of its interim results, as we expect its drinking water sales to be affected by the negative controversy toward the brand during the first-half of this year. We think demand for other beverage segments should remain steady. We note that most of the accusations toward Nongfu Spring were not well grounded and were unrelated to product safety. As a result, we do not see a material threat to its long-term competitive advantage, and the sales headwind should be short-lived. We raise our 2024 selling expenses ratio to account for increased advertising and marketing spending to enhance near-term sales, which led to a 3% cut to our 2024 net income forecast. We also expect 2024 net margin to normalize to 25.9% from over 28% last year, which was boosted by doubling sales of the tea segment. However, we keep our longer-term earnings estimates largely unchanged, and we retain our fair value estimate at HKD 42.50 per share, which implies 34 times 2024 price/earnings, 20 times EV/EBITDA, and 2.2 times dividend yield. We think shares are currently fairly valued.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.

Narrow-moat Nongfu Spring reported solid 2023 earnings with key highlights in the tea category, which doubled in sales and drove margin expansion for the company. Revenue was slightly higher than our forecast, whereas net profit beat our estimate due to a lower selling expenses ratio. Net margin reached a record high of 28.3%, thanks to operating leverage. We slightly lift our five-year revenue and net profit projections by 3% on average, taking into account the higher base in 2023. We project revenue growth from 2024 onward to revert to a more normalized level of below 20%. This marginally raised our fair value estimate to HKD 42.50 per share from HKD 42.00, which implies 33 times 2024 P/E, 20 times EV/EBITDA, and a 2.5% dividend yield. We think shares are currently fairly valued.

Nongfu Spring upholds its market leadership in the packaged water market in China through scalable distribution and production network. In a commoditized category with high price elasticity, Nongfu Spring strives to control costs such that a balance can be achieved between properly incentivizing channel partners and generating economic profits for the company. Through endeavors in product development and brand building, Nongfu Spring has expanded from packaged water to nonwater ready-to-drink, or RTD, beverages such as tea, functional and juice beverages. These nonwater categories have contributed almost half of the revenue growth for the company in the past five years. Notably, the company has expanded its tea segment in recent years led by sugar-free products.