As the "water war" smoke rises again, Zhong Shanshan invests HKD 2 billion to increase holdings in NONGFU SPRING

After the market closed on July 9th, NONGFU SPRING (9633.HK) announced that its controlling shareholder, Yangsheng Tang Co., Ltd. (referred to as "Yangsheng Tang"), plans to increase its holdings with its own funds not exceeding HKD 2 billion within six months from the announcement, citing recognition of the company's value and confidence in the overall business development and growth potential in the future.

Currently, Yang Sheng Sheng, wholly-owned by Zhong Shantang, directly holds 7.5 billion shares of NONGFU SPRING, accounting for 66.82% of the total share capital; Zhong Shantang also directly holds 17.16% of NONGFU SPRING's shares, totaling 83.98% ownership.

Based on the latest closing price of HKD 33.75 per share, Yangsheng Tang's maximum additional investment of HKD 2 billion would amount to approximately 59.26 million shares, representing about 1.2% of the 5.035 billion shares in circulation; excluding Zhong Shantang's holdings, it would account for about 3.3% of the remaining share capital.

NONGFU SPRING stated that Yangsheng Tang's additional investment reflects its long-term commitment to NONGFU SPRING and its strong confidence in the future prospects.

This year, the "water war" has reignited.

In the bottled water sector, NONGFU SPRING has entered the territory of China Resources' C'estbon. They have launched a purified water product with the same specifications as their existing products, using green packaging, claiming it is "pure water from natural sources."

During the market promotion phase, this product's retail price in some supermarkets and online platforms is lower than C'estbon and Wahaha.

In the ready-to-drink tea sector, NONGFU SPRING's Oriental Leaves is facing increasing challenges from more competitors.

Traditional giants like Master Kong (0322.HK) and Uni-President have successively launched sugar-free tea products, with the giants' channel capabilities stronger than NONGFU SPRING's.

According to the prospectus, as of 2021, NONGFU SPRING had 2.72 million terminal outlets, while Master Kong had nearly 5 million outlets during the same period.

In the functional beverage sector, it is the main focus for Dongpeng Beverage (605499.SH) and Yuanqi Forest.

Previously, from a source close to Dongpeng Beverage, it was revealed that by 2024, Dongpeng Beverage's revenue target for electrolyte water is 1 billion RMB, with a different operational approach from Alien and Bao Mineral Water, focusing more on high-tier cities and channel penetration into third- and fourth-tier cities, towns, and rural markets.

In the market environment of "multi-line operations," whether it is subsidies for new purified water products or increasing freezer placements to seize channels, NONGFU SPRING's actions imply more market expenditure, thereby eroding profit performance.

Last year, NONGFU SPRING achieved historical highs in both gross profit margin and net profit margin. This may also be one of the market's concerns about whether it can maintain a high level of profit margin.

As of July 9th, NONGFU SPRING's stock price has fallen by 23.87% year-to-date.

TradeWind01 inquired with relevant personnel at NONGFU SPRING about whether there is a limit on sales expenses for NONGFU SPRING this year, but as of the time of writing, no response has been received