Incident: On April 11, the company held a new Coconut Shark product launch and O'Neill brand spokesperson conference in Shenzhen, unveiled the new brand product Coconut Shark Coconut Water, and officially announced NBA basketball star Shaquille O'Neal as the spokesperson for the Coconut Shark brand, marking the company's official launch on the Coconut Water Circuit.
From early cultivation to official release, Coconut Shark Coconut Water is a summer ready-to-drink channel. Coconut Shark Coconut Water was launched online in 2023Q4. It was tested during the off-season for ready-to-drink sales, and sponsored the 2023 Zhanjiang University Basketball League, the “North Wave Southbound” road surfing trip event, and many domestic marathons through in-kind sponsorship, etc., increasing the exposure of Coconut Shark Coconut Water online. On April 11, 2024, the company held the Coconut Shark Water Market launch and spokesperson signing ceremony in Shenzhen, and officially announced that it had reached a cooperation with basketball star Shaquille O'Neal to officially bring Coconut Shark Coconut Water to the market. We believe this is an important move for the company to focus on ready-to-drink channels this summer.
The new IP represents a new concept and disrupts the coconut water market. According to data from Toubao Research Institute, the processing market size for fresh drinking coconut green/packaged coconut water in 2021 was 2.54 billion yuan, respectively, and is expected to grow at a compound annual growth rate of 25.3%/25.0% in 2022 to 2026, respectively, and is in a period of rapid growth in the industry.
We believe that in the context of the gradual increase in the penetration rate of coconut water, the coconut water industry also has problems such as a single category and homogenization of products, and brand promotion efforts are relatively limited. Since its inception, Coconut Shark has been committed to extending the brand around “sports” and “health”, and empowering the brand's young and vibrant image through sports events. Based on the high compatibility of brand values and ideas, the company signed O'Neal as the brand ambassador. It hopes to use O'Neal's influence in various sectors to further enhance brand awareness and deepen the sports and health image of Coconut Shark Coconut Water, which is a key step in building influence on the C-side.
We believe that the company's entire coconut industry chain layout has laid a solid foundation for its coconut aquatic products. Currently, along with the expansion of brand influence, coconut water is expected to gradually penetrate the high-tier market and contribute to the company's performance growth.
Looking ahead to 24 years, we think the company has outstanding highlights in terms of channels and products:
1) Strive to achieve 1 million outlets by the end of '24 and actively embrace emerging channels. On the basis of about 700,000 effective terminal outlets at the end of '23, the company strived to expand to 1 million outlets by the end of '24. The number of outlets increased by about 42.9%, and a high target was proposed for network expansion. Specifically, the company will continue to increase the development of distribution and catering channels, monitor the layout and development of outlets through informatization means, strengthen product displays and freezer displays, increase the expansion of ready-to-drink channels, and increase product exposure. In addition to traditional distribution channels, the company will actively embrace emerging channels such as snack franchise chains, in line with current cost-effective consumption trends.
2) The traditional business base is steady, and the coconut juice+ product matrix and snack franchise products are worth looking forward to. In terms of traditional business, traditional coconut juice+canned fruit is expected to grow steadily in distribution and catering channels as the company continues to expand its network and channel layout and the continuous expansion of the region. In terms of the new retail business, the company's summer ready-to-drink channel will focus on developing the Coconut Shark Coconut Water series products, with online and offline collaborative development. In addition, small-packaged canned food and beverage products from the snack chain channel are also expected to contribute to the increase in volume.
Profit forecast: We believe that the company has a positive target for 24 years, striving to achieve one million terminal outlets by the end of the year, a stable traditional business base, and a variety of new products such as coconut water. We expect that in 2024-2026, the company will achieve operating income of 22.24/25.47/2,877 billion yuan, a year-on-year increase of 16%/15%/13%, a net profit of 334/4.03/480 million yuan, an increase of 20%/20%/19% year-on-year, and EPS of 0.75/0.90/1.07 yuan/share, respectively. The corresponding PE is 20X/17X/14X, maintaining the “recommended” rating.
Risk warning: Food safety issues, risk of raw material price fluctuations, new product expansion falls short of expectations, channel development falls short of expectations, and production capacity investment falls short of expectations.