On July 11th, Cailian News reported that Zhong Shanshan sold Nongfu Spring shares.

After the market closed on July 9th, Nongfu Spring announced on the Hong Kong Stock Exchange that the controlling shareholder Yangshengtang notified the company that in the next six months from the date of this announcement, based on recognition of the company's value and confidence in the overall business development and growth potential of the company in the future, Yangshengtang plans to increase the company's listed in Hong Kong's H shares by purchasing its own funds on the open market, with an expected total amount not exceeding 2 billion Hong Kong dollars.

As a result of this news, Nongfu Spring's stock price soared by 4.44%, closing at HKD 35.25 per share, with the latest market cap of HKD 396.4 billion.

It's worth noting that Nongfu Spring has been expanding its layout in the pure water and ice cup markets to seek an incremental market. However, the stock price has been weak, with a market cap shedding 15 billion Hong Kong dollars over the past two months.

The controlling shareholder plans to raise no more than 2 billion Hong Kong dollars.

In recent months, Nongfu Spring's stock price performance has become the focus of the market's attention.

On May 3rd, Nongfu Spring's stock price climbed to a new high of nearly HKD 47.98 per share. Subsequently, the stock price fell all the way, hitting a new low of HKD 32.4 per share on July 8th. During this period, the cumulative decline was close to 30%, with a market cap evaporating over 100 billion Hong Kong dollars.

As the stock price continued to be under pressure, Nongfu Spring announced an important notice on the Hong Kong Stock Exchange after the market closed on July 9th.

On the Hong Kong Stock Exchange, Nongfu Spring announced that the controlling shareholder, Yangshengtang, plans to increase its listed in Hong Kong's H shares by purchasing its own funds on the open market, with an expected total amount not exceeding 2 billion Hong Kong dollars, within the next six months.

According to public disclosure, Nongfu Spring's shareholding structure is highly concentrated in the hands of founder Zhong Shanshan and his controlling shareholder, Yangshengtang. The announcement shows that Yangshengtang directly holds 66.82% of Nongfu Spring's total equity, and Zhong Shanshan directly and indirectly through Yangshengtang holds 83.98% of the company's total equity.

Although Nongfu Spring raised considerable funds in its Hong Kong IPO in 2020, the company did not dilute too much of its equity. Due to the limited number of Nongfu Spring's shares actually in circulation, this provides the possibility for Yangshengtang's large-scale shareholding increase this time.

Data shows that after listing, Nongfu Spring's total equity was about 11.246 billion shares, the actual total issuance was 0.446 billion shares, the total amount of funds raised was 9.6 billion Hong Kong dollars, of which 1.227 billion was oversubscribed. The IPO's new equity accounted for less than 4% of the total equity after the increase.

This increase in shareholding by Yangshengtang is the controlling shareholder of Nongfu Spring's first explicit statement of a shareholding increase. Although the amount of 2 billion Hong Kong dollars is not high compared to the company's total market value, considering the high concentration of Nongfu Spring's equity ownership and the limited number of shares actually in circulation, the scale of this increase is not small.

If calculated based on the latest stock price, the proportion of shares actually in circulation will be reduced by about 13% after the completion of the shareholding increase plan, which will undoubtedly have a positive impact on the company's stock price.

At present, Nongfu Spring's daily trading volume is not large. The trading volume in the past two months was 3.7 billion Hong Kong dollars and 3.6 billion Hong Kong dollars, respectively. The amount of the increase in this plan is as high as 2 billion Hong Kong dollars, which is equivalent to more than half a month's trading volume of the company.

Nongfu Spring seeks incremental market share: by crossing over into the ice-making market and returning to the pure water market.

Recently, on social media platforms, posts or videos of Nongfu Spring's Ice Cup DIY drinks have been highly popular. Cailian News reporters found on Little Red Book that there were more than 0.04 million notes about 'Ice Cup,' with various combinations such as ice cup + coffee, ice cup + orange juice, ice cup + green tea, etc., making Ice Cup a popular trend among young people.

It is learned that in 2023, Nongfu Spring began preparing for the ice-making business, applied for the patent of Ice Cup labels (冰杯) in May last year, and began to test the water on a small scale in July. In February of this year, Nongfu Spring Ice Cup cold chain logistics made its first shipment.

There are three manufacturers of 'Nongfu Spring Ice Cup', namely Nongfu Spring Wuling Mountain Chengde drinking water Co., Ltd., Nongfu Spring (Jiande) Xin'anjiang drinking water Co., Ltd. and Nongfu Spring Guangdong Wan Green Lake Co., Ltd. In 2023, the company's overall sales volume is 18,000 kiloliters, an increase of 28.4% year-on-year. The business structure shows that the revenue of 10-30 billion yuan products is 401/1288/60 million yuan respectively.

Currently, the ice product and ice drink market has great potential. According to the '2023 Instant Retail Ice Product and Ice Drink Consumption Trend White Paper' jointly written by Auway Consulting and Meituan Flash Purchase, the growth rate of ice products and ice drinks in the instant retail channel is expected to reach 39% in the next three years, far exceeding the overall growth rate of 8%. It is expected that by 2026, the sales scale of ice products and ice drinks in instant retail will achieve more than fourfold growth and is expected to exceed 63 billion yuan.

However, the average price of Nongfu Spring Ice Cup is 3.5 yuan per cup. At the same time, the 'Snow King Ice Cup' launched by Mixuebingcheng is priced at only 1 yuan. Xiaode, Guoyin, Bingjixian, Binglidat and many other brands have also joined the battle to vie for a share of this emerging market. Zhu Danpeng, an analyst in the Chinese food industry, said in an interview with Caijing Society that the involvement of Nongfu Spring and Mixuebingcheng can bring traffic and popularity, making the ice cup field and products receive more attention and discussion.

"There are more and more new entrants in the ice cup industry. When the competition pattern emerges, there should be room for price to fall," said Zhu Danpeng.

While expanding into the ice-making industry, Nongfu Spring also announced the restart of its pure water business and launched green bottled pure water products. As early as 2000, Nongfu Spring announced that it would no longer produce pure water, but instead focus on natural water production. Why did it return to this market?

The Nongfu Spring financial report shows that in 2023, Nongfu Spring achieved revenue of 42.667 billion yuan, a year-on-year increase of 28.4%; net profit attributable to shareholders of the parent company was 12.079 billion yuan, a year-on-year increase of 42.2%.

However, the contribution of Nongfu Spring's packaged drinking water to the company is decreasing. From 2020 to 2023, the revenue of this segment was 13.966 billion yuan, 17.058 billion yuan, 18.263 billion yuan and 202.62 billion yuan respectively. They accounted for 61%, 57.4%, 54.9% and 47.5% of the total revenue of Nongfu Spring.

This means that Nongfu Spring needs to find new growth points outside natural water. According to the report of Zhuo Shi Consulting, the size of China's packaged drinking water market in 2023 was 215 billion yuan, and it is expected to reach 314.3 billion yuan by 2028. Drinking pure water is the largest subdivision market, with a retail sales of 120.6 billion yuan in 2023, accounting for 56.1% of China's packaged drinking water market, and is expected to reach 197.8 billion yuan by 2028. Expanding into the pure water track can bring new growth points to Nongfu Spring.

However, besides traditional giants such as Yibao and Wahaha, recently Yuanqi Senlin and Dongfang Zhenxuan have also announced their entry into the pure water market. Recently, Nongfu Spring has been making frequent moves. During '618' period, the official flagship store of Nongfu Spring green bottled pure water reduced the price of 12 bottles to 9.9 yuan. Data shows that from May 31 to June 3, Nongfu Spring green bottled pure water achieved cumulative sales of over 1 million units.

In the pure water market, Nongfu Spring is capable of using the revenue from its natural water to support price competition, and the consumer demand for pure water is sensitive to price. In addition, with the brand of Nongfu Spring, it is entirely possible to expand a certain share in a short period of time.

However, in the pure water market, in addition to traditional giants such as Yibao and Wahaha brands, recently Yuanqi Senlin and Dongfang Zhenxuan have also announced their entry into the market.

Recently, Nongfu Spring has been making frequent moves. During the '618' period, the price of 12 bottles of green bottled pure water in the official flagship store of Nongfu Spring was reduced to 9.9 yuan per set. Data shows that from May 31 to June 3, Nongfu Spring green bottled pure water achieved cumulative sales of over 1 million units.

In the opinion of Shen Meng, a director of Xiangsong Capital, in order to quickly expand its market share in the pure water market, Nongfu Spring has the ability to use the revenue from its natural water to support price competition. Consumer demand for pure water is sensitive to price, plus the Nongfu Spring brand, it is entirely possible to expand its market share in a short period of time.