The long-term low-key C'estbon is stepping onto the main stage of China Resources.

“After clarifying strategic and property rights issues, C'estbon's endogenous momentum will be unleashed.”

Last week, two major events occurred in China's packaged water industry: C'estbon (a subsidiary of China Resources Beverage) submitted its IPO prospectus to the Hong Kong Stock Exchange, and Nongfu Spring launched purified water products.

The former signals that C'estbon, long perceived as passive, is now poised to take proactive steps to expand its market share and brand influence.

The latter suggests Nongfu Spring's current growth strategy—blocking competitors while maintaining its financial performance—hence its forced entry into the purified water market.

Objectively, the packaged water and broader soft drink industry is highly dynamic, with top brands constantly adapting to outmaneuver rivals.

By analyzing C'estbon and Nongfu Spring's latest moves, we explore the operational differences between purified and natural packaged water, including cost disadvantages.

For C'estbon, future growth may stem less from direct competition with Nongfu Spring and more from internal strategic focus and resolving property rights bottlenecks.

This article examines C'estbon's transformation by addressing two long-standing internal challenges.

While C'estbon is often compared to Nongfu Spring, its real benchmark should be its past self to gauge future growth potential.

PS: Terms like "C'estbon," "China Resources C'estbon," "China Resources Kirin," and "China Resources Beverage" all refer to the IPO entity—China Resources Beverage (Holdings) Ltd.

‍01—

C'estbon Under China Resources: Why the Passive No. 2?

Public data shows C'estbon's revenue grew from RMB 7.855 billion in 2014 to RMB 13.515 billion in 2023, a CAGR of 6.2%, slightly lagging behind China's packaged water market CAGR of 6.7% during the same period.

This underperformance is evident when compared to industry leader Nongfu Spring and No. 3 player Ganten.

Despite this, C'estbon maintains a solid No. 2 position with an 18.4% market share in 2023—triple Ganten's share and not far behind Nongfu Spring's 23.6%.

C'estbon's market position reflects strong inherent advantages but also growth constraints due to limited internal drive, overshadowed by Nongfu Spring.

This stagnation ties to C'estbon's marginal role within China Resources' vast empire.

China Resources, a conglomerate with 390,000 employees, spans six business sectors, 25 units, and 3,077 entities, including 8 Hong Kong-listed and 9 A-share companies.

As a minor player, C'estbon historically received limited resources while bearing full operational responsibility, fostering caution.

Moreover, China's economic priorities—industrialization, urbanization, and digitalization—favored sectors like energy, infrastructure, and tech, sidelining packaged water.

Thus, C'estbon's growth mirrored the industry average, though its market share remained robust.

02—

Kirin’s Role: A Legacy of Missed Opportunities

In the broader soft drink market, C'estbon's beverage business significantly underperformed, contributing only 7.9% (RMB 1.068 billion) to 2023 revenue.

This wasn't for lack of trying. In 2011, China Resources partnered with Japan's Kirin Holdings (40% stake for $474.7M) to form China Resources Kirin Beverage.

Kirin, a Mitsubishi-backed giant, failed to gain traction in China with products like "Afternoon Tea" and "Fire Coffee," which accounted for just 1.4% of 2023 revenue.

The joint venture became a drag, with Kirin benefiting from C'estbon's water business without delivering beverage growth.

In 2022, Kirin exited via a $1B sale to Plateau Customer Limited (backed by China Investment Corp), yielding an 8% annualized return.

This exit freed C'estbon from internal constraints, paving the way for revitalization.

03—

Reboot: Unleashing Growth

Post-restructuring, C'estbon's revenue and pre-tax profit grew at a 9.2%/24.9% CAGR (2022-2023), reaching RMB 13.515 billion and RMB 1.878 billion, respectively.

Key to this revival was rebalancing channel incentives: C'estbon increased distributors' share of revenue from 59% (2019) to 66% (2023), narrowing Nongfu Spring's lead in retail sales (RMB 39.6B vs. RMB 50.7B).

Beverage sales also doubled to RMB 1.068 billion, though 毛利率 (33.7%) still trails Nongfu Spring's 59.5%, partly due to reliance on third-party production (34 of 46 plants).

With new factories planned along the Yangtze River, C'estbon aims to reduce outsourcing (15.3% of revenue) and expand beyond its southern stronghold.

04—

Competition: Nongfu’s Edge vs. C'estbon’s Potential

Nongfu Spring's recent green-bottle purified water launch—sourced from its 天然水 springs—poses a threat with likely >60% 毛利率， far above C'estbon's ~45%.

However, C'estbon's smaller scale (1,000 distributors vs. Nongfu's 4,000) and untapped northern markets offer room for growth.

Its beverage segment lacks a breakout product, though 菊花茶 "Zhiben Qingrun" (RMB 756M sales) holds 38.5% of a niche RMB 2B market.

While C'estbon isn't yet a challenger to Nongfu Spring, its post-restructuring momentum and financial optimization potential make it an intriguing investment.

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