14.6 billion bottles of Cestbon were sold in a year, China Resources Beverage hit the Hong Kong stock IPO, and Nongfu Spring may enter the pure water market

Source of this article: Times Finance Author: Lin Xinlin

The listing list of the Hong Kong Stock Exchange may usher in another giant of food and beverage.

Image source: Picture Worm Creative

On the morning of April 23, according to the official website of the Hong Kong Stock Exchange, China Resources Beverage (Holdings) Co., Ltd. (hereinafter referred to as "China Resources Beverage") has submitted a listing application to the Hong Kong Stock Exchange on April 22, and the joint sponsors are Bank of China International, CITIC Securities, Bank of America Merrill Lynch, and UBS Group.

The trump card product of China Resources Beverage is "Cestbon". Since 2022, China Resources Beverage has been rumored to be preparing to promote Cestbon to be listed in Hong Kong, with a financing scale of US$1 billion, and now the boots have landed. If successfully listed, it will also be the 18th listed company under China Resources Group.

According to the prospectus, in terms of retail sales in 2023, China Resources Beverage is the second largest packaged drinking water enterprise in China, with retail sales of 39.6 billion yuan, and Nongfu Spring has the largest market share. In the domestic bottled water track, Nongfu Spring has ranked first in market share for many years, followed by China Resources C'estbon.

On April 23, according to a number of media reports, Nongfu Spring will launch green bottled drinking pure water. In this regard, Nongfu Spring has not publicly responded.

14.6 billion bottles of Cestbon are sold a year, and ninety percent of the revenue comes from drinking water

"We are the pioneer of China's packaged drinking water industry and the leader of China's ready-to-drink soft drink industry." China Resources Beverage said in the prospectus.

CR Beverage is principally engaged in the manufacture and sales of packaged drinking water products and beverage products. According to the data of the "Social Responsibility Report" released by China Resources C'estbon before, from 2017 to 2019, the operating income was 10.035 billion yuan, 10.435 billion yuan and 10.396 billion yuan respectively, and the profit was 631 million yuan, 727 million yuan and 863 million yuan.

According to the prospectus, from 2021 to 2023, the revenue of China Resources Beverage will be 11.340 billion yuan, 12.623 billion yuan, and 13.515 billion yuan respectively, with an average annual compound growth rate of 9.2%. The three-year profit was 858 million yuan, 989 million yuan and 1.331 billion yuan respectively, with an average annual compound growth rate of 24.6%. The gross profit margins for the past three years were 43.8%, 41.7% and 44.7% respectively.

From the perspective of product structure, "Cestbon" brand aquatic products are the ballast stone of China Resources Beverage. According to the prospectus, in 2023, CR Beverage will sell more than 14.6 billion bottles of "Cestbon" brand aquatic products, and the annual retail sales of a single product alone will exceed 30 billion yuan.

According to the report of CIC Consulting, in the segmented drinking purified water market, CR Beverage's retail sales in 2023 will reach 39.5 billion yuan, with a market share of 32.7%, ranking first in market share, and exceeding the sum of the second to fifth largest enterprises.

However, in the larger packaged drinking water market, China Resources Beverage's retail sales in 2023 will be 39.6 billion yuan, with a market share of 18.4%, ranking second, according to the company, followed by Jingtian Baisui Mountain, Wahaha, and Master Kong. The first place is Nongfu Spring, which focuses on natural water, with a retail sales of 50.7 billion yuan and a market share of 23.6%.

In fact, according to past public reports, in 2015, China Resources C'estbon had a narrow advantage of 0.3% over Nongfu Spring, but it was quickly overtaken the following year. "According to the CIC report, we have been in the top two positions in terms of retail sales of packaged drinking water for 10 consecutive years. China Resources Beverage said in the prospectus.

Today, in terms of revenue and profit, China Resources Beverage is still a cut away from Nongfu Spring, which has been listed. In 2023, Nongfu Spring's total revenue will be 42.667 billion yuan, and the net profit attributable to the parent company will be 12.079 billion yuan.

The product structure may be one of the reasons why CR Beverage lags behind Nongfu Spring.

Although China Resources Beverage has developed a beverage product line since 2011, launching products such as "Afternoon Milk Tea", "Fire Coffee" and "Magic", it has not yet run a real big hit. In recent years, Nongfu Spring has established product types such as tea drinks, functional drinks and fruit juice drinks. In 2023, Nongfu Spring's packaged drinking water products accounted for 47.5% of total revenue, while beverage products accounted for 51.7%, with the latter surpassing for the first time.

Up to now, CR Beverage mainly has a product portfolio of 13 brands, including "Cestbon", "Zhiben Qingrun", "Honey Water Series", "Holiday Series" and "Zuowei Tea", with a total of 56 SKUs. In terms of revenue contribution in 2023, 92.1% of the revenue still comes from packaged drinking water, and beverage products record revenue of 1.068 billion yuan. In the past three years, the proportion of beverage products has increased from 4.6% and 5.7% to 7.9%.

Zhu Danpeng, an analyst of China's food industry, pointed out to Times Finance that although Cestbon has a large business scale, the prospects for the sustainable development of the pure water track are limited.

Not only to sell water, China Resources Beverage should expand its market share

"Cestbon", which has been rumored to be listed, has finally taken a step towards the capital market.

As early as April 2022, foreign media quoted people familiar with the matter as revealing that China Resources Group was considering an IPO of its packaged drinking water subsidiary, China Resources C'estbon Beverage (China) Co., Ltd., in Hong Kong. China Resources Group has been seeking to liquidate its assets and encourage its subsidiaries to raise their own funds, the people said. In addition to China Resources Beverage, China Resources Group's supermarket chain brand China Resources Vanguard has also been repeatedly rumored to be seeking to raise funds to go public in Hong Kong in recent years.

If CR Beverage rings the bell and goes public, the number of listed companies under CR Group will increase to 18. According to the official website of China Resources Group, 8 of its subsidiaries are listed in Hong Kong and 9 are listed in the mainland.

It is worth mentioning that in the large consumption sector of China Resources Group, China Resources Beer, China Resources Vanguard, China Resources Wufeng and China Resources Beverage are all businesses acquired by China Resources Group.

In 1984, Cestbon's predecessor "China Longhuan Co., Ltd." was established in Shenzhen, and at the beginning of its establishment, it mainly sold Guizhou's specialty drink "prickly pear juice". The sales of this niche product in the market were quite dismal, and the general manager at that time, Zhou Jingliang, tried to promote the transformation of the pure water market, and launched the "Cestbon" brand of distilled water in 1990.

However, Cestbon's development was stymied, and in 1991 it was sold to developer Vanke, and then Vanke, which was cut off from its non-core business, was sold again. In 1996, China Resources Venture, a subsidiary of China Resources Group, which was making a large-scale acquisition of beer and beverage companies, took it over. At that time, China Resources Group was at the helm of Ning Gaoning, and it was advancing all the way. Compared with the business of medicine, real estate, energy and finance, Cestbon is only one of the inconspicuous sectors.

According to public materials, it was not until 2008 that Cestbon was included in the first-level profit center sequence of China Resources Group and changed its name to China Resources Cestbon Food and Beverage (Shenzhen) Co., Ltd.

At that time, Snow Beer, a subsidiary of China Resources Beer, had expanded into a leading brand in the industry, and China Resources Group gradually increased its support for Cestbon.

In 2011, CR C'estbon entered into a strategic partnership with the Japanese beverage giant Kirin Co., Ltd., and the company name was changed to China Resources C'estbon (Greater China) Co., Ltd. (hereinafter referred to as "China Resources Kirin"), and then successively introduced brands such as afternoon milk tea, fire coffee and world-derived kitchens as part of the product portfolio.

Ning Gaoning also pointed out in an article that "when China Resources's distilled water business 'Cestbon' was not listed before, the capital market was not optimistic. However, after the full integration of China Resources Beverage's beverage business and Kirin, the distilled water business was valued at more than 6 billion yuan, and the market completely recognized the brand value of 'Cestbon'. ”

Since then, Cestbon has expanded rapidly, and in 2015, the retail sales exceeded 10 billion yuan. And the giant China Resources Group's plan for the beverage business may be much more than that.

According to the prospectus, CR Beverage and CR Group's related businesses will develop synergistically in terms of sales channels, digitalization, raw material procurement, and project management. In the sales channel, its products are sold through CR Vanguard's supermarkets across the country, increasing brand exposure and consumer reach.

However, in February 2022, Kirin announced the sale of its 40% stake in China Resources Kirin for US$1 billion. After the completion of the sale, Kirin and China Resources Group will continue to cooperate in the soft drink business in China, including intellectual property licensing.

Since 2023, CR Beverage has significantly accelerated its actions in enriching its product portfolio, building and putting into operation its factories, and expanding its retail channels, such as launching new products such as "Zhiben Qingrun" lemon tea and "Benyou" bottled natural mineral water. In February this year, China Resources C'estbon officially announced the title of the 2024 Chinese Football Association Super League.

In the prospectus, CR Beverage also revealed its expansion ambitions. It said that the net proceeds from the IPO will be mainly used for strategic expansion and optimization of production capacity, increase market share, accelerate sales channel expansion and improve channel efficiency, conduct sales and marketing activities to strengthen brand image, enhance product research and development capabilities to continue to expand new product categories, and use for potential investment and mergers and acquisitions.

It is worth mentioning that since last year, the performance of the Hong Kong stock market has been relatively sluggish and weak, and in 2023, it will hit a new low in the amount of IPO funds raised in the past 10 years.

Now, the market value of Nongfu Spring, which was listed before China Resources Beverage, is approaching 500 billion Hong Kong dollars, what kind of market will this "latecomer" deduce?