20230330-招银国际-农夫山泉-09633.HK-Mid-teen_top-line_growth_and_90__dividend_payout_sustain_the_valuation_premium_over_peers_4页_1023kb

Nongfu Spring (9633 HK) Summary

Core Content and Key Highlights

Nongfu Spring, a leading player in the Chinese beverage market, continues to show resilience and growth despite a challenging post-pandemic environment. The company has maintained a strong dividend payout ratio of 90%, which supports its valuation premium over peers. The firm is currently rated BUY, with a target price of HK$58.0, representing a potential upside of +24.7% from the current price of HK$46.5.

Main Points

• Sales Performance:

  • Nongfu Spring has achieved mid-teen top-line growth in the year-to-date period, surpassing its initial guidance of low-teen growth.
  • The strong performance is attributed to volume recovery in Oriental Leaf and large-sized bottled water.
  • Sales momentum for bottled water has remained stable, with larger SKUs (4.5L and 6L) growing faster than smaller ones due to differentiated usage occasions.

• Dividend Payout:

  • The company is expected to maintain a 90% dividend payout ratio unless it pursues major takeover opportunities that would consume significant internal cash.

• Earnings and Profitability:

  • Earnings for FY22E to FY24E have been revised downward, with revenue estimates cut by 6–10% and net profit estimates reduced by 2–10%.
  • Gross margins are expected to remain stable or mildly increase, as PET prices have flattened and the company continues to optimize its product mix and channel strategy.

• Valuation:

  • The updated target price (TP) is based on a 58.0x P/E multiple, which is still 1 standard deviation above the 2-year average since the IPO.
  • The company's P/B ratio is also on a declining trend, indicating a premium over book value.

• Financial Summary:

  • Revenue: Showed consistent growth from FY20A to FY24E, with an increase from RMB 22,877 million to RMB 42,457 million.
  • Net Profit: Increased from RMB 5,277 million in FY20A to RMB 10,860 million in FY24E.
  • EPS: Rose from RMB 0.5 in FY20A to RMB 1.0 in FY24E.
  • Net Margin: Improved from 24.3% in FY22E to 25.6% in FY24E.
  • ROE: Increased from 34.1% in FY20A to 38.4% in FY24E, reflecting strong shareholder returns.

• Cash Flow and Balance Sheet:

  • The company has maintained a strong cash position, with cash at the end of the year increasing from RMB 783 million in FY20A to RMB 19,527 million in FY24E.
  • Net cash from operating activities has fluctuated but remains positive, while net cash from investing activities has been negative due to capital expenditures.
  • Net cash from financing activities has varied, with a notable increase in FY20A and decrease in subsequent years.

• Shareholding and Stock Performance:

  • Yangshengtang Co holds the majority stake (66.8%), followed by Zhong Shanshan (17.2%).
  • The stock has shown mixed performance over different time frames, with a 1-month return of 5.2% and a 6-month return of 1.6%.

Key Financial Ratios

• Gross Margin: Ranged from 57.4% in FY22E to 59.1% in FY24E.
• Operating Margin: Increased from 31.6% in FY22E to 32.0% in FY24E.
• Net Margin: Rose from 25.4% in FY23E to 25.6% in FY24E.
• ROE: Improved from 34.1% in FY20A to 38.4% in FY24E.
• Dividend Yield: Increased from 1.7% in FY22E to 2.1% in FY24E.
• Current Ratio: Slightly improved from 0.7 in FY20A to 0.8 in FY24E.
• Inventory Turnover Days: Declined from 70.4 in FY20A to 54.4 in FY24E, indicating more efficient inventory management.

Conclusion

Nongfu Spring has demonstrated strong performance and financial discipline, with a focus on maintaining high dividend yields and improving profitability. The company's strategic focus on large-sized bottled water and Oriental Leaf has driven sales growth, and its ability to sustain a 90% dividend payout is a key factor in its valuation. Despite a revised earnings outlook, the company remains a solid investment with potential for growth and returns.