20250902-招银国际-华润饮料-02460.HK-1H25_earnings_under_ST_pressure,_LT_gains_from_capacity_expansion_and_channel_reform_7页_1mb

CR Beverage (2460 HK) Equity Research Summary

Key Points Overview

• Short-Term Earnings Pressure: 1H25 revenue and net profit declined YoY by 18.5% and 29%, respectively, primarily driven by a 23% YoY drop in the water business (due to weak demand, fierce competition, and channel reform) and moderate beverage growth (+21% YoY) weighed down by price declines. Full-year revenue is expected to decline, but narrower than 1H24.
• Long-Term Gains Expected: Capacity expansion is proceeding as planned, and channel reforms are ongoing and set to complete by 2026. The company aims to realize synergistic benefits from both initiatives by FY26 or beyond, which should stabilize operations and drive performance.
• Price Target Adjustment: CMB cuts the 12-month target price (TP) by 41% to HK$12.85, reflecting earnings pressure, implying an 18x 2026E P/E multiple. 2026 is anticipated to mark the stabilization phase post-reform.

Water Business (Under Short-Term (ST) Pressure)

• Revenue Decline: Water business revenue fell 23% YoY to RMB 5.25 billion in 1H25, with significant declines in small-sized water (-26.2%) and medium-to-large water (-19.4%).
• Drivers: Weak demand, competition, and the negative impact of channel reforms (which simplified distribution channels effectively).
• Recent Trend: Positive YoY growth observed in both water and beverage businesses in July-August 2025, indicating a narrowing decline in the water segment.

Beverage Business (Moderating Growth)

• Revenue Growth: Beverage revenue increased 21% YoY to RMB 955 million, though this was supported by volume gains but hampered by lower Average Selling Prices (ASP) due to promotions.
• Product Launches: 14 new SKUs launched in 1H25, but competitive pressures have prevented sustained pricing power.
• Outlook: Revenue growth is expected to expand slightly in FY25, supported by a low 2H24 base and continued promotion activity.

Capacity and Channel Expansion

• Capacity Expansion: Implementation is on track with the 60% self-owned capacity target unchanged. However, the impact on gross profit margin is muted by current subdued sales. Recovery and sustained benefits are expected as consumption improves and capacity ramps up.
• Channel Reform: An ongoing intensive channel restructuring in tier-1 cities, distribution enhancements, and dedicated strategies for e-commerce and lower-tier markets. These reforms are expected to yield significant impacts post-FY26.

Investment Recommendation and Risks

• Maintain BUY: The company's transformation is long-term oriented, and 2026 marks the stabilization phase, supporting a BUY recommendation.
• Risks: Exacerbated economic downturn, delays in capacity expansion, suboptimal channel reform outcomes, food safety issues, and raw material price increases are key risks.

Financial Summary

• Revenue Projections: YoY growth stabilizes from negative 15.2% in FY25E to positive 8.3% in FY26E.
• Profitability: Net margin % declines sharply from 12.1% in FY24A to 11.4% in FY25E, reflecting sales pressures, but may normalize post-2026.
• Valuation: The P/E ratio was reduced from 15.4x (FY24A) to 13.4x (FY27E), reflecting earnings risks but maintaining a positive outlook for steady-state operations from 2026 onwards.

Conclusion

CR Beverage faces short-term headwinds in its water segment and implementation challenges, but its ongoing capacity expansion and channel reforms are expected to drive sustainable long-term value creation by stabilizing operations from 2026.