$NONGFU SPRING CO., LTD. (09633.HK) $Over the past 23 years, the cause of deeply ploughing packaged mineral water has delivered the country's best quality water to consumers and become the leading enterprise of soft drinks in China. NONGFU SPRING CO., LTD. is a little sweet. "We only work as porters of nature. "every word is deeply rooted in the hearts of the people.The company not only ranks first in the bottled drinking water market, but also ranks third in the market for tea drinks, fruit juice drinks and energy drinks.

The company, which uses nature's resources to generate 24 billion yuan in revenue a year, finally started its IPO on Aug. 25 and officially listed on Hong Kong Exchanges and Clearing on Sept. 8. The listing of the first leader in soft drinks has gathered a lot of market focus. However, there used to be so many catering consumer stocks in the Hong Kong stock market, but now they are gradually lonely under the competition. After listing, will NONGFU SPRING CO., LTD. consolidate his leading position, or will he be listed and at his peak?

This article will avoid the company and industry introduction of Volkswagen and cut directly into NONGFU SPRING CO., LTD. 's competition pattern in the track, company and finance. To find out with all of you.

Conclusion on the front, NONGFU SPRING CO., LTD. is a very noteworthy and competitive consumer stock with long-term growth value and natural anti-risk attributes.

NONGFU SPRING CO., LTD. focuses on IPO

Before discussing the competitiveness of the company, investors need to know about NONGFU SPRING CO., LTD. 's current IPO.

NONGFU SPRING CO., LTD. 's listing sponsors are CICC and Morgan Stanley, both of which are the top securities firms at home and abroad. High-quality sponsors endorse for the company and establish a patron for investors.

According to the latest prospectus, founder Zhong Jiaoyi, as the main shareholder, indirectly holds 84.41% of the shares. The high concentration of equity facilitates management but also carries the risk of decision-making mistakes. The strategic direction of future management will be one of the main reasons for leading the growth of the company's market capitalization.

The latest figures show that the company will allocate 3.47 per cent of its shares to H shareholders, with a total of 388 million shares, of which 200 shares are expected to be priced at around HK $4343. Compared with at least 25 per cent of other Hong Kong listed companies, NONGFU SPRING CO., LTD. 's 3.47 per cent public shareholding has caused a lot of controversy. NONGFU SPRING CO., LTD. submitted a public shareholding exemption to the HKEx because he met the financial conditions for listing on the HKEx and had a market capitalization of hundreds of billions, according to the prospectus. So in terms of rules, subscribing for fewer shares is not a problem. So back to the question that investors are most concerned about, how will the small number of shares subscribe to affect the investors who participate in playing new ones?

In fact, this is a very simple relationship between supply and demand. NONGFU SPRING CO., LTD. is a leading company with good fundamentals, so it will become a high-quality investment target for many value investors. In the case of small tradable shares, there is a high probability that the market will be in short supply, which will naturally push up the stock price.

So how many shares can be allocated to retail investors this time? Judging from the current quota allocated by the company, if the subscription multiple reaches more than 94 times, the maximum callback percentage of public placement will reach 27%, of which Group An and Group B each account for 50% of the quota.

Group An is expected to be allocated 260000 shares this time, the biggest reason is that the number of first-hand shares is small, so it is expected that there are still many investors can participate. Investors can subscribe to the number of people to roughly calculate the winning rate of NONGFU SPRING CO., LTD..

The static PE ranges from 44 times to 48 times. Judging from the current pricing, NONGFU SPRING CO., LTD. 's valuation is still very high, even higher than the industry leader Coca-Cola Company's 23 times PE. But the new ones are emotions, and valuation is a long-term follow-up.

Daxin is to buy shares from the primary market and sell them to the secondary market. Whether the price is good or not ultimately depends on whether the market accepts the new shares in the hands of investors.

First, track competitiveness

NONGFU SPRING CO., LTD. 's main track is bottled drinking water, which accounts for 60 per cent of the company's total revenue. The company's main track: water, how to compete with other drinks?

In the track competitiveness, we should not only pay attention to the growth space of the industry itself, but the final market capacity of the industry.

After all, no matter how big the pond is, how big the fish is. But a high-capacity track doesn't mean it's a good track. For example, coal, its pond will no longer become larger, resulting in the loss of the possibility of future appreciation. So investors should look for the track with the highest growth rate in the future at the same level of scale. In the case of ponds, investors should choose between two ponds of similar size that can grow into oceans in the future.

In the above table, the market size of each category of China's soft drink market is listed, in which red represents NONGFU SPRING CO., LTD. 's main categories, dotted line represents the market size in 2014, and solid represents the market size in 2019.

According to the data in the picture, packaged drinking water, protein drinks and fruit juice drinks were the three leading soft drinks in China's soft drink industry in 2014. However,In 2019, packaged drinking water surpassed protein drinks and fruit juice drinks at a growth rate of 10.80% to become the largest soft drink market.The coffee beverage with the highest growth rate, though with the highest compound growth rate, cannot surpass other categories in the short term, resulting in unpredictable growth in the future. From the current market share and growth, water is the irreplaceable king in soft drinks.

As mentioned at the beginning of the article, water is fundamentally different from other drinks. Water is an indispensable resource for people in daily life and can not be replaced by other drinks.People can only drink water every day, but not just juice every day.Such a "necessity" name alone has set up a natural barrier for the water track.

With the increasing demand for food hygiene, packaged drinking water will appear more frequently in kitchens, restaurants and other scenes. In families, there is a tendency to drink cleaner packaged water for infants and children as well as drinking water for adults. Even many hot pot restaurants began to play: NONGFU SPRING CO., LTD. pot bottom; this pot bottom boasts that mineral water will be cleaner and sweeter than other water quality as the selling point. As more and more people are willing to use mineral water instead of ordinary filtered and purified water, the market for mineral water will further expand.

At present, natural water and natural mineral water are the fastest growing categories of packaged drinking water.From 2014 to 2019, the compound annual growth rates of these two categories were 24.8 per cent and 18.4 per cent, respectively, much higher than 11 per cent of the total packaged drinking water category.NONGFU SPRING CO., LTD. can be said to have chosen a track that will never be abandoned by consumers, but also took advantage of the heat of consumption upgrading, with a very good growth.

But water also has its drawbacks. Water has no room for improvement and cannot innovate and develop new varieties like juice coffee, such as vegetable juices and lattes. This disadvantage leads to the homogenization of the water track is particularly serious, in the final analysis, it is unable to make consumers feel too different in nature. But from an investment point of view, the homogenization of water represents a stable competition and a predictable future. As being in a stable and fast-growing track, leading enterprises will benefit a lot.

In the water that tastes the same, why should consumers choose NONGFU SPRING CO., LTD.? This is the time to focus on its company's competitiveness.

Second, the company's competitiveness

In the consumer goods industry, consumer goods and science and technology products are different, product homogenization is serious, it is difficult to evolve differences, so that consumers can only make decisions through price and brand.Therefore, the company must create brand barriers in order to have long-term competitiveness.

1) Brand influence

NONGFU SPRING CO., LTD. knows very well that a bottle of water alone can not create tens of billions of sales in the industry, so it is necessary to attach its value to mineral water. Since it is impossible to promote the atmosphere of sports and happiness like Coca-Cola Company, thenDefine water as a different kind of water.The company's main marketing strategy is: simplicity, difference, consumer resonance. Reviewing the company's past advertisements, from "NONGFU SPRING CO., LTD. is a little sweet" to "Porter of Nature", the sweet taste of mineral water has been made to belong only to NONGFU SPRING CO., LTD.. In recent years, the company's publicity has been around the water source, while building a brand, highlighting another competitiveness of the company.

I have to say, NONGFU SPRING CO., LTD. has a textbook marketing team, after all, it has really achieved to let consumers think that its water is unique and chic.

2) Resource monopoly

In addition, as the industry leader in the soft drink market, the company occupies an absolute resource advantage. NONGFU SPRING CO., LTD. holds the top 10 water source bases in China, occupying the absolute superiority in time, nature and policy, and has built a solid barrier in the packaged drinking water track for the company. why do you say so?

At present, about 60% of the water in the packaged drinking water track is pure water, and most water sources can be used to extract it. However, the growth rate of pure water market is slower than that of mineral water market, and for consumers who gradually pursue health, pure water can not provide high net value demand of consumers. At present, the pure water on the market has Yibao, Wa and other enterprises, the price is the same as NONGFU SPRING CO., LTD. 's price. At the same price, consumers will be more likely to choose natural water sources with the addition of "trace elements".

After excluding the competition for pure water, NONGFU SPRING CO., LTD. has the 10 most famous water source bases in China with the help of his own resources, locking up the best quality water sources in the mineral water market. For the local government, NONGFU SPRING CO., LTD. has absolute advantages and funds to extract water resources without damaging the environment, and it is difficult for other small and medium-sized enterprises to have the capital and influence to compete with them. For consumers, other mineral water, such as Jingtian Centennial Mountain, with higher prices and fewer water sources, consumers will be more likely to choose cheap and high-quality NONGFU SPRING CO., LTD..

All in all, NONGFU SPRING CO., LTD. 's water source base has created an absolute moat for its low price and high quality water quality, and it is difficult to surpass.

3) Channel terminal

Channel is the basic function of consumer goods, if you want a consumer product to grow at a high speed, then the channel must be done well. Terminal sales is the ultimate source of consumer goods. In the limited flow of people and purchasing power, only the terminal network is willing to sell, the product can be sold. This should start from two key points: 1) the product is good and can attract customers; 2) the profit is high and the supplier can make money.

NONGFU SPRING CO., LTD. managed to make suppliers willing to sell their own products. From the beginning to promote their own products, through water tests to tell the knowledge of natural weak alkalinity, opened up the offline market. In the later period, the cost was continuously reduced, and the 55% gross profit was given to the dealers at the ex-factory price of 80 cents, which attracted the hearts of many store owners.

So what is the root cause of NONGFU SPRING CO., LTD. 's rapid development is its channel management. NONGFU SPRING CO., LTD. has 4454 dealers and 2.43 million terminal outlets in China, of which 1.88 million are located in cities below the second tier. It can be said that the scope involved is equivalent to the postal scope of China Post. In such a scenario, its logistics and warehousing expenditure control is also declining year by year, from 2017 to 2019 is 13.4%, 11.0% and 10.5%, respectively. Under the use of economies of scale, the volume of products per transport continues to increase, so that unit freight costs can be reduced, and finally create a wide coverage, low-cost competitiveness for NONGFU SPRING CO., LTD..

Not only that, the company also asked the distributor to pay first and then pick up the goods. The company's current accounts receivable turnover days is about 4 days (average accounts receivable × 365 / operating income) represents that the company only needs 4 days to recover receivables, and the return efficiency of funds is high. However, the company's inventory turnover days (average inventory × 365 / operating cost) is 62.5 days, indicating that the company's inventory takes an average of 62 days to sell, which is relatively high. From an industry point of view, Coca-Cola Company, Yili, Vitasoy these American A Hong Kong stocks of beverage leading inventory turnover days of 75.66,42.21,71.43 days respectively. NONGFU SPRING CO., LTD. is in a leading position in the industry. However, there is still much room for improvement in the number of days of inventory turnover. Represents the company in the channel terminal, can optimize inventory management to further enhance the competitiveness of the company.

III. Financial competitiveness

Only companies with high competitiveness in financial management can provide higher returns to shareholders. Apart from NONGFU SPRING CO., LTD. 's high-quality track and management ability, can the company continue to provide profits for shareholders?

In 2019, NONGFU SPRING CO., LTD. 's total income reached 24.021 billion yuan, an increase of 17.3% over the first half of the year. It is hard to imagine that NONGFU SPRING CO., LTD., an enterprise that sells a bottle of beverage, can achieve such a large revenue. As mentioned earlier, NONGFU SPRING CO., LTD. has excellent terminal channel management, which makes the company cover almost all the sales outlets in China. While winning by volume, NONGFU SPRING CO., LTD. also achieves a profit level much higher than that of its peers with excellent gross profit margin and net profit.

On average, it costs about 1.84 cents to produce a NONGFU SPRING CO., LTD. bottle, plus water and other costs. The company still achieved an operating profit margin of 60.2% after it was distributed to dealers at an ex-factory price of 8 cents. This profit margin is very large, not only for the company to make money, but also for dealers to earn 55% operating profit margin.

The main cost of selling NONGFU SPRING CO., LTD. 's mineral water comes from PET particles, which account for about 30 per cent of the total cost of sales. According to the price of PET in previous years, the price fluctuation of PET is still relatively large. But PET particles always have a price ceiling and will not go too far beyond the company's current profit range. It is expected that in the future, the company can hedge the commodity prices of PET particles to lock in raw material prices within a certain range, thus alleviating the risk of rising raw material prices.

Summary:

NONGFU SPRING CO., LTD. as a leader in the soft drink industry, to mineral water as a large single product to break out of their own world. It is worth mentioning that the company has built its own soft drink empire with water alone, which precisely proves the excellent operational ability of the management of the company.

Returning to the issues that investors are most concerned about, can NONGFU SPRING CO., LTD. bring value to investors? The conclusion is affirmative, the company has unparalleled competitiveness in track, company and finance.

But NONGFU SPRING CO., LTD. raised another question: why did the company choose to go public at this time?

Whether it is packaging drinking water or Fresh Juice's production line, the utilization rate of the production line is still sufficient, and farmers in mountainous areas are in no hurry to raise funds to expand production. Putting aside the needs of the management itself, according to the current data, NONGFU SPRING CO., LTD. is most looking forward to increasing the speed of sales to optimize inventory. For NONGFU SPRING CO., LTD., who is in deep homogenization competition, this is an operation to expand brand influence and increase consumer recognition through listing, and it is also the first step in the transformation of new retail.

To sum up, NONGFU SPRING CO., LTD. has high-quality fundamentals and cash flow, and will have a broader market and popularity after listing. There is a good chance that the listing and peak will not happen, and the strategic layout of management will be an important focus in the future.