In 2019, the performance was in line with expectations, and the growth of operating income was stable. According to the 2019 annual results announcement, the company reported a 10% year-on-year increase in revenue to 17172 million yuan, which was mainly driven by growth in sales of high-margin products and improved packaging structure, contribution of new products, sugar-free series and Chunyue series. In 2019, the company's gross profit margin increased by 1.1% year-on-year, mainly due to good tax cuts and improved product structure; in 2019, adjusted EBITDA increased by 22% year-on-year to 1544.9 million yuan.

The growth of carbonated drinks is stable, and the performance of functional drinks is outstanding. In 2019, the company's carbonated beverage revenue increased by 10% compared with the same period last year, mainly due to the growth of sugar-free series and product packaging replacement; fruit juice revenue increased by 0.7% year-on-year; and aquatic product revenue increased by 14% year-on-year, mainly driven by 2 yuan of Chunyue product sales growth. The magic claw series of functional drinks were launched in strengthening gas stations, schools, Internet cafes and other channels, achieving a 139% year-on-year increase in business revenue. In 2019, the company continued to expand sales channels, of which the number of modern channel customers and catering channel customers increased by 17000 and 63000 respectively; at the same time, the company also increased cooperation with e-commerce channels to promote sales growth.

It is estimated that the EPS from 2020 to 2021 is 0.27 yuan and 0.31 yuan per share respectively. The company benefits from the increase in operating income and gross profit margin driven by endogenous growth and product structure upgrading. We expect the company's EPS to be RMB0.27,0.31 per share in 2020-2021, and the current price corresponds to 9.36,8.32 times PE in 2020-2021. Based on the DCF model, the reasonable value of the company is HK $3.97, maintaining a "buy" rating.

Risk hint. Sales of major products fell short of expectations; prices of raw materials rose sharply. Note: unless otherwise stated, RMB is used as the currency in this article.