HK IPO subscription: China Resources Beverage (C'estbon) IPO analysis and subscription plan
China Resources C'estbon Beverage (China) Co., Ltd. (hereinafter referred to as "the Company") is one of China's leading packaged water and beverage enterprises. Established in 1990 and headquartered in Shenzhen, Guangdong Province, the Company relocated its registration from the British Virgin Islands to the Cayman Islands on April 16, 2024. Centered around the "C'estbon" brand, the Company is committed to providing consumers with high-quality packaged water and a diverse range of beverage products.
Major Shareholders
The Company's major shareholders include China Resources Group (Beverage) Co., Ltd. and Plateau Consumer Fund, L.P. China Resources Group (Beverage) Co., Ltd. holds 60% of the Company's shares, while Plateau Consumer Fund, L.P. holds 40%.
Business Overview
The Company's core business includes the production and sales of packaged water and beverage products. Through a nationwide sales and distribution network, the Company offers consumers a variety of high-quality beverage options. Key products include:
1. Packaged Water Products: Primarily under the "C'estbon" brand, encompassing bottled water and barrel water in various sizes to meet diverse consumer needs.
2. Beverage Products: Including tea beverages, fruit juices, carbonated drinks, and sports drinks, with brands such as "Zhiben Qingrun," "Zuowei Chashi," "Afternoon Milk Tea," and "Mishui Series."
Market Position
According to a CIC report, the Company ranked second in China's packaged water market in 2023, with an 18.4% market share, and first in China's purified water market, with a 32.7% share. Additionally, the Company holds significant positions in multiple sub-markets, including tea beverages, fruit juices, and coffee drinks.
Development Strategy
The Company aims to achieve sustained growth through the following strategies:
1. Enhance Channel Efficiency: Strengthen traditional channels while expanding emerging sales channels to increase retail outlet influence.
2. Expand and Optimize Production Capacity: Build proprietary factories, expand production lines, and improve efficiency in manufacturing and supply chains.
3. Adhere to Sports Marketing: Collaborate with top-tier sports events to elevate brand awareness and reputation.
4. Accelerate New Product Categories: Enrich the product portfolio to meet diverse consumer demands.
5. Advance Digital Transformation: Develop an interconnected management system to enhance operational efficiency.
6. Attract and Cultivate Top Talent: Strengthen human resource management to drive organizational progress.
Corporate Social Responsibility
The Company actively fulfills its social responsibilities by participating in public welfare initiatives, including the "100 Libraries Project" and the "Disaster Relief Rapid Response Mechanism." Additionally, the Company is committed to achieving carbon peak and neutrality goals, promoting green development.
Future Outlook
The Company will continue to consolidate its leading position in the packaged water and beverage markets, striving for higher market share and performance growth through innovation and expansion in the coming years.
Use of Proceeds
Key Note: The Company plans to raise approximately RMB 25,972 million in net proceeds through a global offering. The funds will be allocated to global R&D investments, upgrades in smart manufacturing and supply chain management, enhancing global distribution channels, and boosting overseas sales of proprietary brands.
IPO Information:
Pre-IPO and Cornerstone Investors:
Pre-IPO investor Plateau invested a total of USD 1 billion (approximately HKD 7.769 billion) in China Resources C'estbon Beverage, with a cost per share of USD 1.25 (approximately HKD 9.71), representing a 30.7% discount to the offer price. Pre-IPO investors are subject to a six-month lock-up period.
China Resources Beverage has introduced nine cornerstone investors. At the lower price range, cornerstone investors account for 51.25% of the offering; at the mid-point, 49.43%; and at the upper limit, 47.22%. Cornerstone investors are subject to a six-month lock-up period.
Sponsors:
The offering is jointly sponsored by UBS Securities, BOCI, CITIC Securities, and Merrill Lynch, with UBS acting as the stabilizing agent. The four sponsors are generally stable, with their most recent projects closing profitably. CITIC Securities, in particular, is renowned for its "CITIC-produced, must be premium" reputation. UBS, as the stabilizing agent, has not taken on any projects in the past two years, though its performance from two years ago is less relevant to the current market.
Financial Highlights:
Revenue:RMB 11.339 billion in 2021, RMB 12.622 billion in 2022, and RMB 13.514 billion in 2023.
Gross Profit:RMB 4.971 billion in 2021, RMB 5.259 billion in 2022, and RMB 6.035 billion in 2023.
Net Profit:RMB 858 million in 2021, RMB 988 million in 2022, and RMB 1.331 billion in 2023.
Lot-Winning Rate:
The Company is offering 347.8262 million shares globally, with 200 shares per lot. As of this writing, the offering is oversubscribed by 26.85 times. Given the current demand, the clawback is expected to trigger the 40% threshold, with 347,826.2 lots allocated to each of Groups A and B. An estimated 20,000–60,000 participants are expected, with a 100% lot-winning rate.
Comprehensive Review:
China Resources Beverage may sound unfamiliar to some, but its "C'estbon" brand is widely recognized. Major bottled water brands in China include Nongfu Spring, C'estbon, Wahaha, Ganten, Master Kong, and Ice Dew.
According to the prospectus, the top five companies in China's ready-to-drink soft beverage market in 2023 were: 1. Wahaha, 2. Master Kong, 3. Nongfu Spring, 4. Coca-Cola, and 5. C'estbon. In the packaged water market, the rankings were: 1. Nongfu Spring, 2. C'estbon, 3. Ganten, 4. Wahaha, and 5. Master Kong.
In the broader purified water market, C'estbon ranked first, with its retail sales exceeding the combined sales of the second to fifth companies.
The Company's primary revenue comes from packaged water products, which generated RMB 12.446 billion in 2023 (92.1% of total revenue), while beverage products contributed RMB 1.068 billion (7.9%). China Resources Beverage reported a gross margin of 44.7% and a net margin of 9.9% in 2023.
In comparison, Nongfu Spring's 2023 revenue breakdown was: water products (RMB 20.262 billion, 47.49%), ready-to-drink tea (RMB 12.659 billion, 29.67%), functional beverages (RMB 4.902 billion, 11.49%), fruit juices (RMB 3.534 billion, 8.28%), and others (RMB 1.311 billion, 3.07%). Nongfu Spring achieved a gross margin of 59.55% and a net margin of 28.31%.
A cross-industry comparison reveals that China Resources Beverage's valuation in this offering lacks significant advantages. Both growth and profitability metrics lag behind Nongfu Spring by one or two tiers, yet the offering valuation is benchmarked against Nongfu Spring. Given the data, this stock is mediocre at best. If China Resources Beverage's growth and profitability matched Nongfu Spring's, the valuation might justify the hype. As it stands, it's hard to get excited.
Fundamentally, the valuation is reasonable but slightly expensive. Sentiment-wise, Hong Kong stocks have struggled post-holiday, mirroring the A-share market's woes. Launching a large-cap stock like this in such an environment offers no edge. The Company aims to raise HKD 4.694–5.042 billion, with cornerstone investors locking up 49.4%, leaving a free float of around HKD 2.6 billion. This stock is more about brand spectacle—like a social media influencer who looks glamorous with filters but underwhelms without them. In eight words: "Neither tasty nor worth discarding."
Bull Rating: Bronze Bull
Rating Scale: Platinum Bull > Gold Bull > Silver Bull > Bronze Bull > Pot Bull (Platinum Bull: no-brainer for leverage; Gold Bull: high certainty, leverage recommended; Silver Bull: decent certainty, multi-account flat allocation; Bronze Bull: volatile, prone to sharp swings; Pot Bull: not worth participating)
Subscription Plan:
Apply if you want, but keep expectations low!
$CR BEVERAGE(02460.HK)
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