Incident: According to data from the National Bureau of Statistics, the country's cumulative beverage production from January to June 2024 was 98.1 million tons, an increase of 7.90% over the previous year. Furthermore, with the exception of the monthly beverage production increase of only 3.3% in March 2024, the monthly beverage production rate in the other months was over 5% year-on-year (January-month total calculation).
The beverage industry was booming in the first half of the year. I am optimistic that the company's beverage business will continue to grow rapidly and its share of revenue will continue to rise. According to data from the National Bureau of Statistics, the cumulative production of beverages maintained relatively good growth in the first half of '24.
We believe that the good performance of the beverage industry in the first half of '24 was mainly due to a good recovery in outdoor travel consumption (for example, according to the Chinese Government Network, the movement of people across regions increased 9.4% year-on-year during the Dragon Boat Festival holiday in '24, and 2.1% year-on-year during the “May 1st” holiday in '24). In addition, looking at Q2 alone, the monthly beverage production growth rate for April to April '24 was 9.7%/7.9%/6.5%, respectively. We believe that fluctuations in the monthly growth rate of 24Q2 beverages may have been adversely affected by torrential rain, but even so, the beverage industry still showed strong growth momentum in the second quarter, reflecting good downstream demand.
The company's beverage business increased its share of overall revenue from 42.14% in 2017 to 52.51% in 2023, while 17-23 revenue cagr = 20.4%. The beverage business surpassed the water business to become the company's largest revenue contribution. We expect that, benefiting from the positive boom in the beverage industry in '24, the beverage business is expected to continue to grow rapidly in '24, while its share of overall revenue will continue to increase.
I am optimistic that the launch of green bottles of purified water may help enhance the company's overall competitiveness in the field of packaged water. The company launched purified drinking water in green bottles in April. The company uses high-quality natural water as raw water for drinking. It insists on building a factory at the water source and bottling the water source, which is a bit sweet to drink. We believe that the introduction of purified water packaged in green bottles will, on the one hand, complement the product line other than drinking natural water in red bottles, giving consumers more choices. On the other hand, the introduction of green bottle packaging will also help the company have a more flexible market strategy mix in terms of display and pricing of packaged water, further enhancing the company's overall competitiveness in the field of packaged water.
Overall costs are stable, and we are optimistic that we will continue to maintain good profitability. The company's net sales margin increased from 19.31% in '17 to 28.15% in '23, and profitability continued to increase. Referring to wind, the average price of 24H1PET decreased 2.8% year-on-year compared to the same period in the first half of '23, and the average price of 24H1 corrugated paper fell 6.5% year-on-year compared to the first half of '23. Furthermore, the company currently has 12 major water source bases, and the Huangshan base officially started construction in '23 (as a comparison, according to the prospectus, the company was only 10 major water sources). Continued expansion and layout of the water sources will also facilitate the continuous optimization of the company's overall transportation costs. Therefore, taking this into account, we are optimistic that the company will continue to maintain good profitability.
Profit forecasting and investment advice. We expect the company's total revenue for 2024-2026 to be 48.065/58.586/65.901 billion yuan, and the net profit forecast to mother is 13.069/15.608/18.704 billion yuan, respectively, and the corresponding EPS is 1.16/1.39/1.66 yuan/share, respectively.
We believe that with reference to the PE valuation of comparable companies, and considering that the company itself is still in a good growth stage, we continue to give the company a PE (2024E) valuation range of 30-35 times, corresponding to a value range of 34.80-40.60 yuan/share, based on the Hong Kong dollar to RMB 0.90 exchange rate, corresponding to a reasonable value range of 38.67-45.11 HKD/share, and continue to maintain the “superior to the market” rating.
Risk warning. (1) Declining market demand, (2) product promotion falling short of expectations, (3) fluctuating raw material prices, and (4) food safety issues.