Company Overview: Starting in Guangdong, it gradually became the leading energy drink company in the country. The company, formerly known as Dongpeng Beverage Factory of Shenzhen Oriental Company, was founded in 1987, then transformed into a private enterprise through privatization reform. In 2009, it launched Dongpeng Special Drink in dustproof bottles, gaining a competitive advantage with differentiated packaging and pricing. With the success of the Dongguan sample market, the company began a nationalization journey in 2013 and successfully went public in 2021. The sales volume exceeded 10 billion dollars in 2023.

At the same time, the company is actively constructing a multi-category development strategy, and has successively launched diversified sub-brands such as Dongpeng Hydration La, Pengyou Tea, Dongpeng Big Coffee, VIVI Cocktails, Sea Island Coconut, Drink More, Drink More Run, etc., which are expected to reuse channels and brand power to become a leading comprehensive beverage group in China.

Industry analysis: The market expansion prospects are broad, and the pattern is stable, and Dongpeng has an advantage. (1) Industry size: The best growth rate among soft drinks, with a volume of nearly 60 billion. Energy drinks have anti-fatigue properties and are mildly addictive. Over the past ten years, the compound growth rate was 11.8%, surpassing the overall performance of soft drinks. The market size reached 57.6 billion yuan in 2023, an increase of 8.1% over the previous year. In the future, it is expected to continue to grow as the crowd expands, the scenario expands, and tastes expand, targeting Japan in the medium term, and the volume may be close to 100 billion yuan. (2) Industry development: Starting with Red Bull, it gradually grew. Red Bull entered China in 1995 and took the lead in cultivating the energy drink market. Since then, the industry has benefited from rapid industrialization and ushered in a period of rapid growth. Red Bull has always been in a leading position and occupied more than 80% of the share, but since 2106, it has been involved in trademark disputes, and its share has loosened. Domestic brands such as Dongpeng and Lehu have taken advantage of the rise, and the industry landscape has changed from a single family to a super strong company.

(3) Brand competition: Dongpeng is superior. Analyzing the development characteristics of various brands, the high quality and price ratio positioning of domestic brands avoids head-on confrontation with Red Bull. Compared with high-end products, Dongpeng's advantage is mainly due to greater focus, that is, deep cultivation over more than 20 years, bringing the cumulative advantages of products, channels, and brands.

Energy drinks: Differentiation builds advantages, and nationalization contributes more.

(1) Competitive advantage: high price-to-price ratio, strong channel potential, strong brand mentality. The Red Bull trademark dispute provided Dongpeng with development opportunities. In the process, Dongpeng also gradually built up and formed its own competitive advantage. It is mainly reflected in three aspects: a. At the product level, anchoring a large group of blue-collar workers, quickly opening up the market with high quality and unique patented packaging, and gradually occupying the consumer mentality of price-sensitive people to form demand stickiness; b. At the channel level, the rapid deployment from Guangdong to the whole country, leading the digital operation system and continuous improvement, which can achieve full tracking of product circulation, greatly improving channel operation efficiency and management decision-making efficiency; c. At the brand level, through multi-form, high-frequency, and full-coverage marketing intensity, it occupies the first association of consumers in times of exhaustion, and gradually rises to a high level of popularity. Level up, increase popularity and reputation.

(2) Future space: The nationalization journey is not complete, overseas markets are gaining initial strength, and sales volume has not yet reached its peak. Domestically, the company started in Guangdong and gradually radiated to the whole country. Currently, it is still in the growth stage of strengthening nationalization. The development between regions is uneven, and there is room for improvement in the number of outlets and individual efforts outside the province. According to two methods of calculation, we expect Dongpeng Energy Drink's domestic revenue to exceed 20 billion yuan in the medium term, at least double the room for growth compared to 2023. Overseas, the company is also actively exploring development opportunities, has successively developed energy drink products exported to the US, South Korea, Malaysia, etc., and has exported products to 18 overseas countries and regions through traders. With the gradual deepening of the overseas layout, the company's energy drinks are expected to usher in a wider development space;

Second curve: Hydration is showing initial results, and the multi-point layout cultivates new kinetic energy. The company launched a multi-category development strategy and became an integrated beverage group. In the process of creating a new product, Rehydration took the lead, showing strong growth momentum. Other new products also showed good growth momentum, initially verifying the logic of the new product. According to the summary analysis, the company has a set of high win rate and high odds style of play in building the second curve. The specific manifestation is, (1) industry dimension: choosing a track with high quality potential, and second, entering the game with followers. The track chosen by the company conforms to long-term consumer trends such as healthy sugar reduction (electrolyte drinks, sugar-free tea, plant drinks), caters to the consumption needs of young people (such as ready-to-drink coffee, cocktails), has a strategic advantage in long-term development, and enters the market as a follower to reduce market education costs and make it easier to share industry development opportunities; 2) Company dimensions: continue the high quality and price ratio strategy, reuse channels, and brand advantages. Following the high quality and price ratio strategy of energy drinks, it is expected to achieve competitive transformation in a weak environment. Combining the channels and brand advantages built in the early stages, it is easier for new products to achieve breakthrough growth.

Investment and construction: The company's energy drink base is stable, new products are gaining momentum, and the second curve continues to gain strength. Combining advantages such as brand, channel, and scale, it is expected to successfully switch from a single category to multiple categories, and gradually become a leading comprehensive beverage enterprise in China. We maintain our previous profit forecast. We expect the company's revenue to be 15.255/19.666/24.764 billion yuan in 2024-2026, up 35.4%/28.9%/25.9% year on year, and net profit to mother of 2.913/3.824/4.827 billion yuan, up 42.8%/31.3%/26.2% year on year, maintaining the “buy-B” rating.

Risk warning: Market demand falls short of expectations, new product performance falls short of expectations, raw material prices have risen sharply, data estimates may have errors, etc.