Sinolink Securities released a research report, covering Nongfu Spring (09633) for the first time, giving a "buy" rating, and expecting the company's net income attributable to shareholders to be 11.9/14/16.5 billion yuan in 2024-2026. Considering the company's strong brand and first-mover advantage in channels, the fundamentals are expected to bottom out and rebound, with a target price of HKD 40.53.

Sinolink Securities' main points are as follows:

1) In the medium to long term, it is expected that with the increase in per capita consumption, the combination of natural water and purified water will steadily increase market share.

Looking ahead, the bank believes that Red Water has the advantage of natural water occupancy, and the company has formed strong barriers in terms of water sources, channels, brands, etc., and is expected to stabilize and recover on a low base. Promotional activities for Green Water will continue for some time, and competitors are unlikely to engage in vicious price wars due to profit considerations. The company is expected to maintain a relative advantage in a weak demand environment. In the long term, China's per capita consumption of bottled water still has room to double compared to the United States / South Korea, and the bottled water industry will continue to expand steadily, with the company expected to continuously increase market share.

2) The medium to long-term penetration rate of sugar-free tea is expected to increase to 50%-60%, and I remain bullish on the doubling growth of Oriental Tea Leaves.

With the rising awareness of consumers' health, the previous preparation and cultivation of sugar-free beverages, in recent years, China's penetration rate of sugar-free tea has increased rapidly. According to the bank's calculation, it is expected to reach 20% in 2023, but compared to markets with similar tea drinking habits such as South Korea and Japan, there is still more than four times the room for expansion. Oriental Tea Leaves is expected to capitalize on its early brand promotion and consumer education, while quickly expanding market share through existing channel network resources. Combining significant constraints on existing competitors in terms of product and channel, the bank expects Oriental Tea Leaves to continue to benefit from industry expansion dividend.

3) Seizing the opportunity of differentiation in niche tracks, it is expected to continue to launch the third major product using platform advantages.

Currently, the company has large-scale products in two major categories: sports drinks and fruit juice beverages. These two tracks have the characteristic of low concentration and room for category expansion. The bank believes that with the company's experience accumulation in new product insights, supply chain construction, channel expansion, and sinking, other categories such as sports drinks and ready-to-drink coffee are likely to seize the next opportunity.