According to Zhito Finance APP, guolian has released research reports stating that China's packaged water market is large and growing rapidly, with the CR2 having improved in recent years. The consumption scenarios are gradually diversifying, and the growth in demand for healthy water and large-packaged water is expected to further boost the packaged water market. The potential in the industry remains significant, and leading enterprises are likely to continue driving growth. In the short term, intensified price competition in the packaged water industry has impacted the revenue growth and profitability of leading companies. In the long term, leading companies, leveraging channel efficiency and cost advantages, are expected to capture more market share in the packaged water segment through the launch of green water, further enhancing industry concentration.

Guolian Securities' main points are as follows:

China's packaged water market is large, and the CR2 has improved.

Packaged water is the largest and fastest-growing segment in China's ready-to-drink soft drink market, with a market size of 215 billion yuan in 2023, accounting for 23.65% of the soft drink share, and a 5-year income CAGR of 7.10%. Per capita consumption in China's packaged water market is lower than that of countries like the US and Japan. The increasing demand for healthy water and large-packaged water is expected to further drive the growth of China's packaged water market. In terms of competition landscape, the CR5 of the packaged water industry has increased from 56.2% in 2019 to 58.6% in 2023, with the combined market share of the two leading companies, nongfu spring and china resources beverages, rising from 33.58% in 2019 to 42% in 2023. The market concentration in the industry is gradually increasing.

China Resources focuses on channel cultivation, while Nongfu Spring has a cost advantage.

In 2023, Nongfu Spring and China Resources Beverages had revenues from packaged water of 20.262 billion yuan and 12.447 billion yuan, respectively, growing by 10.95% and 4.54% year-on-year. The proportion of packaged water revenue was 47.49% and 92.10%, down by 7.46 and 2.22 percentage points year-on-year, respectively. Leading companies are driving growth with differentiated strategies. On the marketing side, Nongfu Spring focuses on trending collaborations to enhance brand strength, while China Resources Beverages emphasizes sports marketing to solidify its brand image. China Resources Beverages has a higher selling expense ratio compared to Nongfu Spring, mainly due to advertising and employee costs. On the channel side, Nongfu Spring leads the market through dealers, while China Resources Beverages focuses on refined operations. On the cost side, Nongfu Spring has a cost advantage, with the per ton cost at 685.4 yuan in 2019, while China Resources Beverages' self-manufactured per ton cost was 1208.5 yuan in 2023.

Nongfu Spring has launched green water, short-term competition in the industry intensifies.

In 2024, the industry will be affected by multiple events, leading to short-term intensified competition. After Nongfu launched green water in April, brands such as Wahaha, JingTian, and YiBao quickly followed suit, while Sam's Club, East Buy, and Pang Donglai also rolled out cost-effective aquatic products. After the launch of green water, Nongfu's market share quickly rebounded. According to jd.com, on June 18, Nongfu's purified water products achieved first place in the jd.com water drink new product ranking. According to data from YING CT, as of mid-October, the total sales share of Nongfu Spring's red water and green water exceeded 30%, ranking first in the bottled water market, with the market share of green water rising from 0 to about 9% by the end of the second quarter.

The diversified beverage business is expected to become the second growth curve for the leader.

While the two major leaders in packaged water consolidate their advantageous positions, they gradually shift towards driving growth through diverse categories. Nongfu Spring has launched a variety of packaged water categories for different consumer groups, with innovative product packaging designs. A preliminary high-speed development pattern of multiple categories has also been formed, with revenues in 2023 for packaged water / ready-to-drink tea / functional beverages / juice beverages accounting for 47.49% / 29.67% / 11.49% / 8.28%, respectively. China Resources Beverages currently has over 90% of its revenues from packaged water, based on YiBao, accelerating the advancement of its beverage layout and achieving first in the Chrysanthemum tea market, gradually solidifying the multi-category development strategy structure of 'one strong, many strong'.

Investment recommendation: Recommend Nongfu Spring, and suggest paying attention to China Resources Beverages (02460).

Recommend Nongfu Spring, which has cost advantages, with stable growth in bottled water market share and sugar-free tea expected to contribute additional growth. Suggest paying attention to China Resources Beverages.

Risk warning: Macroeconomic conditions may not meet expectations, intensifying industry competition, water quality safety issues, and risks of discrepancies between estimates and actual results.