Incident: The company issued the “Notice on Signing an Investment Agreement with the Haikou National High-tech Industrial Development Zone Management Committee” to invest 1.2 billion yuan to build a production base project in Hainan.

It is planned to build a new production base in Hainan to focus on future sales in Hainan and Southeast Asia. Based on the company's strategic plan, the company plans to build a production base in Hainan, with a total project investment of 1.2 billion yuan to build a production workshop for modern high-end beverage production lines, and support the construction of intelligent finished product warehouses, employee dormitories and other supporting facilities. The project is expected to be completed within 24 months after construction starts, and the project will be put into operation 6 months from the date of completion. That is, the Hainan production base is expected to be put into operation within 2027. After the Hainan production base is put into operation, the company expects to meet future sales needs in Hainan and Southeast Asia in a more timely and effective manner, reduce long-distance logistics and transportation costs, and further enhance the company's core competitiveness.

Production capacity continues to increase, focusing on medium- to long-term domestic and international development, and consolidating the production capacity base. 1) Tianjin production base: In November 2023, the company signed an investment agreement with a total investment of not less than 0.6 billion yuan. According to the Tianjin Xiqing public account, the project started in March 2024, completed basic construction in September 2024, and the project is expected to be completed in June 2025; 2) Zhongshan production base: The company signed an investment agreement in April 2024, with a total investment of not less than 2.5 billion yuan. The project started within 6 months from the agreed date of land delivery, within 36 months from the agreed date of commencement of construction Completion; 3) Kunming production base: In July 2024, the company signed an investment agreement with a total investment of 1 billion yuan. The project took about 24 months from the date the construction permit was obtained to complete completion and acceptance, and put into operation 6 months after acceptance. 4) Hainan production base.

Furthermore, in March 2024, the company announced that in the future, it plans to invest in high-quality listed companies upstream and downstream of the domestic and foreign industrial chain through securities investment, with a total investment of no more than 1.5 billion yuan (not including capital) RMB or equivalent currency. The company plans to continue to invest in the construction of 4 production capacity bases over the past year, and plans to invest in high-quality enterprises in the industrial chain, fully demonstrating the company's confidence in future market demand prospects and determination to expand nationalized and global markets.

Move firmly towards a comprehensive beverage group. We believe that the energy drink market is still in the early stages of development in China. As the consumer base continues to expand, the company's energy drinks still have a lot of room for growth; as the company's second largest single product, electrolyte water is expected to continue to concentrate resources to seize the market in 2025, and the results will continue to show as channels expand nationally.

Profit forecast and investment rating: Currently, the domestic energy drink competition pattern is excellent. Dongpeng Special Drink's high cost performance and strong channel power have enabled the nationalization process to advance smoothly. At the same time, the consumer base is expanding. Water supplementation has been recognized by consumers for its high quality-price ratio, and there is great potential for growth. We expect the company to achieve revenue of 16/20.2/24 billion yuan in 2024-26, a year-on-year increase of 42%/26%/19%, and achieve net profit to mother of 3.3/4.3/5.3 billion yuan, an increase of 63%/29%/23% year-on-year. The corresponding PE is 34X/26X/21X, respectively, maintaining the “recommended” rating.

Risk warning: industry competition intensifies, investment project construction progress falls short of expectations, new product promotion falls short of expectations, raw material prices fluctuate greatly, etc.