Nongfu Spring, Hong Kong’s hottest IPO in 2020, beats earnings consensus as analysts target 40 per cent upside in stock

Zhang Shidong
·3-min read

Nongfu Spring, China’s water-bottling group controlled by the nation’s second-richest billionaire, surpassed market expectations with its first annual report card since completing Hong Kong’s hottest stock offering in 2020.

Earnings rose 6.6 per cent in 2020 to 5.28 billion yuan (US$809 million) from a year earlier, the company said in an exchange filing after the market closed on Thursday. That is ahead of the 5.1 billion yuan consensus in a Bloomberg poll of 21 analysts. Revenue grew 4.8 per cent to 22.9 billion yuan, it added. The company has proposed to pay 0.17 yuan per share in dividend.

“We will continue to promote the development of the dual-engine development approach underpinned by packaged drinking water and beverage,” founder and chairman Zhong Shanshan said. “On the other hand, based on research and development, we will launch high-quality beverage products that meet consumer needs.”

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Billionaire founder Zhong has a net worth of US$61.1 billion on March 25, trailing Pony Ma Huateng of Tencent Holdings in Bloomberg’s ranking. Photo: sohu.com
Billionaire founder Zhong has a net worth of US$61.1 billion on March 25, trailing Pony Ma Huateng of Tencent Holdings in Bloomberg’s ranking. Photo: sohu.com

Nongfu sold 446.5 million shares at HK$21.50, including a 15 per cent overallotment, to raise the equivalent of US$1.2 billion in net proceeds en route its Hong Kong listing in September last year. The stock rose as high as HK$68.75 in January, and last traded 5 per cent higher at HK$40.95 on Thursday, giving it a market value of HK$460.5 billion.

Nongfu Spring received 1,147 times in IPO subscription from local retail investors, the highest on record in local market history, until it was broken by Kuaishou Technology in February. The 65-year old Zhong has a net worth of US$61.1 billion, trailing Pony Ma Huateng’s US$61.8 billion, according to Bloomberg data.

In its latest report card, the Hangzhou, Zhejiang province-based firm counted the successful launch of its premium range of beverages for its gains. It helped overcome a decline in traditional drinking products amid a pandemic-induced slowdown. Nongfu had a 6.3 per cent share in China’s soft beverage market in 2019, according to its listing prospectus.

Premium products such as soda water, plant-based yogurt and fresh fruits surged 136 per cent from a year earlier as customers turned more health-conscious amid the pandemic. The company’s other four product segments from packaged drinking water to tea beverage all recorded declines in sales, the results showed.

The stock trades at about 71 times earnings, compared with the average multiple of 32.2 times for its global peers in the non – alcoholic drinks business, according to Bloomberg data.

Nongfu Spring has a 12-month share-price target of HK$57.67, implying a 40.8 per cent upside from Thursday, the data shows. Among the 21 analysts who cover the stock, 14 rate the stock a buy while four recommend a hold and three call for a sell.

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