With a sharp drop of 1/3 in 3 months, is Nongfu Spring another fallen "consumption mao"?

Titanium Media APP

2024-07-28 07:12Posted on the official account of Beijing Titanium Media APP

Text | Reading Finance and Economics, Author | Yang Yang, ed Xia Yijun

In the three years since the bursting of the core asset bubble, the consumption leader has been swooping down. Even Moutai itself has fallen by 30%, and other consumer Maotai has fallen by 7%.

But Nongfu Spring is an exception, before May this year, it was only down 25% from its former market capitalization high, more resistant than Moutai, and is the most resilient consumer stock.

But after May, it was a different story. In the past three months, the market value of Nongfu Spring has fallen sharply by 1/3. What happened? Is Nongfu Spring the next consumer thatch to fall?

This article holds the following views:

1. The business of selling water has changed. Pricing power + strong operation makes Nongfu Spring's gross profit margin as high as 59.5%. However, the green bottle water launched in May launched a price war and knocked down its profits, and some research reports predict that Nongfu Spring's net profit fell by 4.6% in the first half of the year.

2. There are hidden worries about lowering the brand premium. The ranking of consumer goods investment philosophy is that the product power is not as good as the channel power, and the channel power is not as good as the brand power. The most direct embodiment of brand power is the strong price. The decline of many brands often starts with a price imbalance.

3. It will not become another fallen consumer mao. At the beginning of the consumption downturn, many consumers copied the answers of Japanese companies and raised prices to ensure performance. But it didn't keep it, deepening the decline in the stock price. Nongfu Spring has found an incremental market for sugar-free tea and still maintained its growth.

The water business has changed

Hong Kong stocks + consumption, when these two labels are concentrated on one company, the valuation of this company is likely not to look good.

Nongfu Spring was an accident, with the sharp decline in Hong Kong stocks and the "volume and price decline" of the consumer market, the valuation of Nongfu Spring has been more than 50 times for a long time (2020/September to 2023).

One of the cores that supports the high valuation is the super profitability brought to it by pricing power + strong operation. In 2023, Nongfu Spring's net profit will increase by 42.19% year-on-year, and the gross profit margin will be as high as 59.5%.

Most of the bottled water on the market is pure water, pure water comes from tap water, and natural hot water comes from nature.

Strong operation is to allow farmers to make a lot of money even if it is only a little more expensive than pure water.

The price of natural water is low, the transportation cost is high, there is a "500 kilometers transportation radius" theory, that is, the price of 2 yuan of water, the sales place is more than 500 kilometers away from the production place, the company can only work for high-speed toll stations and gas stations. Therefore, Kunlun Mountain mainly attacks more than 5 yuan, and does not pit the poor at all.

The 12 water sources of Nongfu Spring are evenly distributed in the main consumer markets across the country, which perfectly fits the "500-kilometer transportation radius", and even if two pieces are sold, the profits will not be eaten up by the transportation costs. Now that water sources are restricted, it is impossible to compete for the effect of buying farmers with money.

Pricing power + strong operation, Nongfu Spring has been lying down to make a lot of money, and no one can threaten its profits unless it is itself.

Public opinion has affected the sales of Nongfu Spring, and data from Jiuqian Zhongtai shows that Nongfu Spring was affected by the public opinion event caused by the death of the founder of Wahaha in the first half of the year, and the sales in the first half of the year did not reach the target.

However, the doll time is mainly affected in March and April, and Nongfu Spring also hit a new high in the stock price in the past three years in May. After May, Nongfu Spring's share price fell sharply by 1/3.

It shows that it is itself that pulls the stock price down, in order to stimulate sales. Nongfu Spring launched green bottle water in May, which quickly set off a price war. 618, the price of 12 bottles of green bottle pure water in Nongfu Spring's official flagship store, with an average price of 0.82 yuan per bottle, is much lower than Wahaha and Cestbon .

It's hard to say whether the price war can grab the share, but their own profits will probably come down first. Macquarie's research report released in July predicts that Nongfu Spring's net profit may fall by 4.6% in the first half of the year due to promotions and subsidized sales channels.

In addition to worrying about the price war and fighting the profits, the market is also worried about the brand premium of red bottle water.

The hidden concern of pulling down the brand premium

The ranking of consumer goods investment philosophy is that the product power is not as good as the channel power, and the channel power is not as good as the brand power.

The most direct embodiment of brand power is the strong price. The decline of many brands often starts with a price imbalance. Such as Estee Lauder.

The two major cosmetics leaders, L'Oreal's revenue is still hitting a new high, but Estee Lauder has experienced a decline in revenue for 7 consecutive quarters. The reason is that Estee Lauder often discounts, and when consumers are accustomed to the 300 yuan small brown bottle, who will pay for the regular-priced goods in the mall counters and flagship stores?

Nongfu Spring knows the importance of the brand, so it has launched a new green bottle of water to fight a price war.

In the eyes of some people, Nongfu Spring is fighting a price war with a newly launched and zero-sales product, which is to play the Tianji horse racing strategy to perfection, and the green bottle water has grabbed the share, but it has not hurt the brand of red bottle water.

This statement is a possibility, if it goes well, Nongfu Spring may rely on its cost advantage to crush others, and its market share will continue to increase. But there is also a risk that it may divert the sales of Nongfu Spring red bottle water and pull its brand premium down one step further.

Similar things are also very common, after the ideal L6 was launched, the first thing to hit was not other products, but to beat down the sales of their own L7.

Although the size of L6 is smaller than that of L7 and some reductions have been made, after the release of L6, relying on the price of 70,000 yuan cheaper than L7, the ideal L6 first hit the weekly sales of L7 from 3000 to about 2000.

Back to Nongfu Spring, although the green bottle of water is pure water, which is equivalent to reducing the natural water of the red bottle water, a bottle of 8 cents is still a lot cheaper than 2 yuan and 1 bottle, and the price is attractive enough.

Especially when consumers buy water, many people rely on the convenience of "taking it easily", when new products are crowded with old products in one channel and one dealer's hands, to compete for the same group of consumers. There is a big question about whether the green bottle water can divert the sales of red bottle water.

Compared with a variety of beverages that have disappeared in the long river of history, Coca-Cola, a beverage product with the longest life cycle, has been selling well all over the world without any major product iterations in the 100 years since its birth.

A rare surprise was that in 1985, Coca-Cola announced that it would no longer produce old Coke, but would adopt a new recipe and a new name. Then suffered a sales downturn, and after returning to the classics, Coca-Cola began to set things right.

Looking at it this way, for consumer goods, product innovation should be more focused on new products, and in the face of core and long-established fundamental products, it is better to toss less. After all, brand loyalty and user stickiness are the biggest moats of consumer goods, and tossing and turning sometimes weakens the mind.

Will Nongfu Spring, which is now in crisis, be the next consumer thatch to fall?

We will not repeat the mistakes of other consumer mao

In the past three years, the consumption leader has swooped all the way, and the consumption of Mao that has plummeted by 7% abounds.

But Nongfu Spring was a surprise, and if you don't count the sharp decline after May this year, it is only 25% below its previous market capitalization high, making it the most resilient consumer stock.

At present, although Nongfu Spring is caught in a price war and its stock price is retraced rapidly, in the long run, it is difficult for Nongfu Spring to fall by 7-8% like other consumer mao.

The biggest difference from other consumer shorts is that Nongfu Spring still has strong growth potential.

After the consumption was cold, the growth of many consumer leaders was under pressure, and the revenue of Haitian and Arowana fell by 4.1% and 2.3% year-on-year in 23 years. However, Nongfu Spring's revenue increased by 28.36% year-on-year.

The core of Nongfu Spring's contrarian growth is to give full play to the advantages of reuse of consumer goods channels. That is, with the help of the channels that have been developed, more and more new categories are sold.

Relying on bottled water channels, Nongfu Spring's tea drinks have become the engine driving the company's growth, and the proportion of tea beverage revenue has increased from 13.5% in 2020 to 29.7% in 2023.

In fact, channel scenario reuse is something that every consumer leader can do, for example, Haitian has successively developed oyster sauce and sauce with the help of soy sauce channels.

But the difference is that most of the products extended by consumer leaders still belong to the stock products of the old battlefield, while Nongfu Spring is betting on products with incremental potential.

As early as 2021, Nongfu Spring launched Oriental Leaves, which once became the most unpleasant drink in consumers' mouths, and its early sales also hit the streets, but it still insisted on cultivating the brand.

Until the rise of the concept of health, sugar-free tea has sprung up, with a compound growth rate of more than 20% in the past five years. Nongfu Spring has also achieved high growth with the help of its strength.

Nongfu Spring also provides a reference for domestic consumption leaders to survive the economic cycle.

In the early stage of economic adjustment, the path taken by domestic consumer goods leaders was somewhat similar to Japan's high-end upgrade. For example, Japan's "Haitian", after facing the economic downturn, Kikko King maintained a revenue growth rate of 3%-8% through high-end price increases (its products are 30% higher than similar products).

Domestic consumer leaders Haitian and Arowana have also raised their prices in the past two years, but the effect is not obvious, and the company's revenue has still shown negative growth. In essence, although the same economic cycle has been encountered, the per capita income level is different, and it is difficult for domestic consumption leaders to copy the answer.

For the current consumer Mao, the best way to break the game is to find their Oriental leaves as soon as possible.