Pacific Securities: Upgraded China Resources Beverage (02460) to "Overweight" rating; second-tier beverage growth potential is sufficient

CITIC Finance App has learned that Pacific Securities issued a research report stating that China Resources Beverage (02460) is expected to achieve revenues of 11.47/12.24/13.12 billion yuan in 2025-2027, respectively, with YoY changes of -15% / +7% / +7%. The attributable net profits are projected at 1.28/1.41/1.55 billion yuan, respectively, with YoY growth of -22% / +11% / +10%. Corresponding P/E ratios are 20x / 18x / 16x, and a “Hold” rating is given.

Pacific Securities’ main points are as follows:

Leading pure water industry player, expanding from South China to nationwide, accelerating beverage business layout

China Resources Beverage started in South China and has developed over 40 years into the second-largest packaged water company in China, with a market share of 18.4%. From 2021 to 2024, the company’s revenue grew from 11.34 billion yuan to 13.52 billion yuan, with a CAGR of 6.04%, and net profit increased from 858 million yuan to 1.661 billion yuan, with a CAGR of 24.63%. Gross profit margin improved while sales expense ratio declined, boosting profit elasticity. The company’s revenue structure is mainly packaged drinking water, accounting for 84.6% in the first half of 2025. In recent years, the beverage business has accelerated its growth, rising from 4.6% in 2021 to 15.4% in the first half of 2025.

Stable demand in the packaged water industry, solid brand and channel foundation, broad national expansion prospects

According to Euromonitor data, China’s packaged water market size increased from 50.9 billion yuan in 2010 to 219.9 billion yuan in 2024, with a CAGR of 11.02%. Growing demand for healthy, safe, and instant drinking water has driven the packaging rate upward. Compared internationally, the domestic packaging rate in 2023 is about one-quarter of the US, indicating significant growth potential. Packaged drinking water features high standardization and homogenization, leading to a highly concentrated market. Since 2024, industry competition has intensified, with several companies initiating price wars, causing short-term market disruption. Farmer’s share declined initially but gradually rebounded; Wahaha continued to gain market share; China Resources’ share slightly decreased. The company has deep roots in the packaged water industry, cultivating flagship products exceeding 10 billion yuan in scale, and adheres to sports marketing strategies targeting core sports consumers, building the “Yibao” brand as a benchmark. Its extensive and solid sales network includes over 1,000 distributors nationwide and nearly 3 million retail outlets, with strong sales personnel capabilities, ranking above industry average. The company initially held a dominant share in South China, which remains over half, while the eastern and southwestern markets are emerging. In the first four months of 2024, the southern/eastern/southwestern markets accounted for 30% / 29% / 15%, respectively, with increasing efforts in northern markets, indicating promising prospects for nationwide expansion.

Strong growth potential in the second beverage curve

In recent years, the company has been expanding its second beverage business, continuously enriching its health product portfolio and innovating. It has launched categories such as herbal plant drinks, sugar-free tea, sports drinks, and coffee. In 2024, beverage revenue reached 1.397 billion yuan, with a CAGR of 38.8% from 2021 to 2024. On the channel side, the company actively increases support and acquisition of retail outlets, as well as expanding freezer placements, with a long-term goal of reaching one million freezers. The water segment’s single-point output performance is relatively better and close to industry leaders, but beverage single-point output is only 13% of water. As the product matrix continues to diversify, the company is gradually strengthening beverage channel coverage and freezer deployment, indicating ample growth potential.

Increased self-production ratio + volume growth in beverages boosting gross margin; scale effects and operational efficiencies improving expense ratio, potentially raising net profit margin center

In the first half of 2025, the company’s net profit margin (13.26%) is significantly lower than Nongfu Spring (29.75%) and Eastroc Beverage (22.12%), mainly due to a low self-production ratio and high marketing expenses. Future improvements in self-production and volume expansion are expected to raise gross margins. Additionally, scale effects and operational efficiencies will help optimize sales expense ratios, potentially shifting the company’s net profit margin center upward.

Risk warnings: Food safety risks, increasing industry competition risks.