Author | Liu Baodan

Editor | Zhou Zhiyu

From the public opinion crisis to the continued decline in stock prices, Nongfu Spring, known as the “Maotai in the Water,” urgently needs to regain investors' confidence. This time, Zhong Yuyi stood up.

On July 9, Nongfu Spring issued an announcement stating that the controlling shareholder Yangshengtang plans to increase its H share holdings with its own capital, and the total amount is expected to not exceed HK$2 billion. This is the first time that Nongfu Spring has increased its holdings since it went public in 2020.

This was a critical moment of action. Since May, Nongfu Spring's stock price has continued to decline. Combined with public opinion events in March, Nongfu Spring's position in the minds of investors is much worse than before, and needs to be improved.

As a leader in the Chinese beverage market, Nongfu Spring has taken the water business to the extreme. The gross margin level of over 50% not only made the company the most profitable company, but also brought Chairman Zhong Yuyi to the position of the richest person in China for three consecutive years.

However, this capital myth is being shattered. After 28 years of development, Zhong Yuyi and Nongfu Spring have entered a difficult time to break through.

Take urgent action to increase your holdings

Whether in the capital market or in front of the public, Zhong Yuyi can be called the lowest ranking richest person in China, but this time, he chose to take action personally.

According to the announcement, Yangshengtang directly holds 7.515 billion shares in Nongfu Spring, accounting for about 66.82% of the company's issued shares. Meanwhile, Zhong Yuyi directly and indirectly holds 9.444 billion shares in Nongfu Spring, accounting for about 83.98% of the company's issued shares.

Nongfu Spring is a listed company with a high concentration of shares, and Zhong Yuyi is the biggest speaker. According to his plan, the current increase in Nongfu Spring's holdings will be completed in the open market within the next six months.

Increasing holdings to increase buying power in the market and drive up stock prices is generally viewed as good news. Nongfu Spring also said that this is based on recognition of the company's value and confidence in future overall business development and growth potential.

Jiang Han, a senior researcher at the Pangu Think Tank, believes that this shows the strong confidence and positive attitude of the majority shareholders about the company's future development. Furthermore, since Nongfu Spring's shares are highly concentrated in the hands of the majority shareholders, the increased market influence may be even more significant. However, the specific effect still needs to take into account the comprehensive impact of factors such as the market environment.

Over the past period, Nongfu Spring was treated coldly in the capital market. This was a direct driving factor that drove Zhong Yuyi to take action.

On May 3, Nongfu Spring's stock price reached HK$48.8 intraday, a high since this year. Subsequently, the company's stock price continued to fall and reached HK$32.4 on July 8, breaking the annual low record. The stock price quickly plummeted by 33.6% in a short period of time, and the market value evaporated by more than HK$160 billion.

Behind the fall in stock prices, Nongfu Spring experienced an unprecedented brand crisis, and the new product strategy did not deliver more positive feedback.

In March, Nongfu Spring was involved in an unexpected public opinion crisis, which affected sales of the core product Nongfu Spring natural water. A store owner operating a supermarket around Beijing said that they can usually sell 7 or 8 boxes of water from Nongfu Spring a month, but it wasn't easy to sell a single bottle at that time.

According to a report published by Macquarie, a well-known agency, Nongfu Spring's sales growth forecast for the first half of 2024 slowed to 7.6%, and net profit fell 4.6%. The bank also anticipated that Nongfu Spring's gross margin narrowed 2.2 percentage points to 58% in the first half of the year.

Under these circumstances, Nongfu Spring quickly launched a new product in May, green bottled purified water, also from natural water sources, in an attempt to recoup lost sales from rivals that also focus on pure water.

To this end, Nongfu Spring also launched a price war. The store owner mentioned above said that the purchase price of Nongfu Mountain Spring's green bottle of water is 0.8 yuan per bottle, which is 0.2 yuan cheaper than the red bottle of water. During the 618 period, the sales price at the Nongfu Spring Guanqi store dropped to 0.825 yuan/bottle, far lower than the retail price of bottled water such as Yibao and Wahaha.

At present, the capital market is still concerned about Nongfu Spring's new products. Shen Meng, director of Chanson Capital, believes that Nongfu Spring's entry into the pure water market will lower the gross profit margin of listed companies and affect performance.

Shen Meng further emphasized, “Although this is a way to prevent competitors from challenging the core natural water business of listed companies, the costs may be high. It may reduce gross margin levels over a long period of time and change investors' views.”

The increase in holdings is an important step for Nongfu Spring to boost the market, and the capital market has also given positive feedback. Since the announcement, Nongfu Spring's stock price has rebounded slightly for two working days.

The increase in holdings will gradually be realized, which is a good start for investors.

Is the title of richest person difficult to guarantee?

Among the Chinese entrepreneurial community, Zhong Yuyi is a special presence. He is one of the few people who have escaped from the beverage and healthcare sector, and his wealth exceeds that of Internet bosses such as Ma Yun and Ma Huateng.

Twenty-eight years ago, he cut into drinking water, a potential track that matches the characteristics of heavy snow on the slopes. From water sources to production lines, from logistics and transportation to distributors all over the country, step by step, he turned Nongfu Spring into a beverage faucet.

In 2020, Nongfu Spring successfully went public in Hong Kong, with a market capitalization of HK$370 billion. As a result, Zhong Yuying also became a regular customer on the rich list.

In October of last year, 69, Zhong Yuyi became the richest man in China for the third time with 450 billion yuan. This post-50s representative dedicated to modernizing traditional industries successfully broke through among young entrepreneurs.

Echoing this is the development of Nongfu Spring. In the past three years, Nongfu Spring achieved revenue of 42.7 billion yuan, 33.2 billion yuan, and 29.7 billion yuan, with growth rates of 28%, 12%, and 30% respectively. The corresponding gross margins were as high as 59.55%, 57.45%, and 59.46%, respectively. It can be seen that its profitability is strong.

Of course, this is also inseparable from Nongfu Spring's major dividends. According to Tonghuashun data, Nongfu Spring has accumulated HK$25.47 billion in dividends since 2020, which is also a key factor in attracting investors.

However, this trend was reversed this year. Nongfu Spring, which is good at building brands, unexpectedly experienced a crisis of public opinion. Zhong Yuyi had to personally come out to refute rumors about her relationship with Zong Qinghou, and Nongfu Spring also responded to 20 rumors in one go.

Currently, Nongfu Spring's business focus is on two points. One is to continuously improve the bottled water market performance, which accounts for half of the company; the other is to continue to develop new products such as tea drink products, energy drinks, juice drinks, etc., and continue to explore new growth points.

Nongfu Spring's top priority is to stabilize the bottled water market performance as soon as possible and fix the ongoing response brought about by the public opinion crisis. However, this is not easy.

The bottled water market is becoming increasingly competitive. In April, China Resources Drinks, where Yibao works, officially submitted a prospectus to the Hong Kong Stock Exchange. The funds raised will be used to strategically expand and expand the sales network; earlier, now Mailang Blue Label Water had already landed in terminals such as Wumei supermarkets to boost first-tier cities.

Whether Nongfu Spring can maintain its leading position, the next card is critical. This will largely determine the future development direction of Nongfu Spring.

Unleashing confidence by increasing holdings is a very positive gesture. It also shows that Zhong Yuyi and Nongfu Spring are making more changes and breakthroughs.

Whether Zhong Yuyi, who is over 70 years old, can continue to rise to the top of the rich list depends on investors' confidence in Nongfu Spring, and more on the consumer's attitude towards Nongfu Spring. This will be a tough battle.