On August 28, Nongfu Spring’s share price suffered a heavy setback in the Hong Kong stock market. The share price fell rapidly after the opening. It once plummeted 12% during the session, setting a record low since the company’s listing. Since the beginning of this year, Nongfu Spring’s share price has fallen by nearly 40%.

The market generally believes that the plunge in Nongfu Spring’s stock price is mainly related to its latest financial report data. The company pointed out that malicious public opinion attacks were the main reason for the first significant decline in revenue from its core drinking water business.

Interpretation of Nongfu Spring Financial Report

Nongfu Spring's financial announcement on August 27 showed that from January to February 2024, the group's packaged drinking water product sales performed well, with sales revenue increasing by 19.0% year-on-year. However, since the end of February, a large amount of negative public opinion and malicious slander against the company and its founder have emerged on the Internet, which has had a serious negative impact on Nongfu Spring’s brand image and sales performance, causing its packaged drinking water product revenue to drop for the first time. There was a significant decline.

According to financial report data, in the first half of 2024, Nongfu Spring's packaged drinking water products achieved revenue of 8.53 billion yuan, a decrease of 18.3% from the same period last year, and the proportion of the group's total revenue also dropped from more than 50% in the past to 38.5% . The performance decline of this core product has directly affected the group's overall profitability.

Nongfu Spring's revenue in the first half of 2024 reached 22.17 billion yuan, a year-on-year increase of 8.4%; the profit attributable to owners of the parent company was approximately 6.24 billion yuan, a year-on-year increase of 8%. However, compared with the past three years' interim financial reports, Nongfu Spring's revenue and net profit growth have hit new lows.

Why was Nongfu Spring so maliciously slandered, and how much was the loss?

In March this year, Nongfu Spring suffered the most serious cyber violence incident since the company was founded. At the same time, the death of Wahaha founder Zong Qinghou drew public attention to the historical disputes between the two major beverage brands and their founders. This not only caused Wahaha products to receive unprecedented popularity in the market, but also caused the products to be out of stock. It also caused Nongfu Spring's bottled water sales to suffer a significant decline. Nongfu Spring revealed to Jiemian News that industry experts estimate that this ongoing public opinion crisis may cause the company to lose more than 7 billion yuan in revenue in the first half of the year.

Faced with this challenge, Nongfu Spring has taken active measures since March to clarify the truth to the public through multiple channels and hold those who spread rumors accountable in accordance with the law. At the same time, the company has implemented a series of marketing strategies, including launching new products, increasing investment in end markets, and reducing product prices through promotional activities, in order to restore offline sales of its packaged water. In April, Nongfu Spring launched a new green bottle purified water product, marking the group's first return to the purified water market after focusing on drinking natural water for 24 years. The launch of new products was accompanied by large-scale promotional activities, triggering a "price war" in the drinking water market, which quickly attracted the follow-up of beverage industry giants such as C'estbon, Master Kong, and Jinmailang.

Despite the above measures, the negative impact of public opinion incidents on Nongfu Spring is still deeply rooted. At the subsequent interim results exchange meeting, the company's management stated that although the market share of packaged water rebounded from July to August, the impact of the public opinion incident has not been completely eliminated, and the recovery process is expected to be relatively long. Looking forward, Nongfu Spring expects its net profit margin in the second half of the year to be slightly lower than that in the first half. The company's management emphasized that they will not pursue scale expansion (OPM strategy) as their only goal, but will focus more on achieving long-term profitability and healthy development. The double-digit growth target set at the beginning of the year will not sacrifice the company's long-term interests for short-term goals, reflecting the company's firm commitment to profitable and healthy development.

Tea beverages performed well

Drinking water sales suffered a severe setback, but tea beverages performed relatively well. In the first half of the year, Nongfu Spring's tea beverage product line (including Oriental Leaf and Tea π) achieved revenue of 8.430 billion yuan, a year-on-year increase of 59.5%, accounting for 38.0% of the company's total revenue, almost the same share as packaged drinking water. If other beverage products such as functional drinks and juice drinks are included, the revenue of Nongfu Spring's entire beverage segment increased by 36.7% year-on-year, accounting for 61% of total revenue.

According to data released by Nielsen in August last year, since its listing in 2011, Oriental Leaf has achieved rapid growth for three consecutive years, with a compound growth rate of more than 90%. Oriental leaves and tea π together contributed more than 60% of the increase in the ready-to-drink tea market. In addition, Nielsen data shows that as of July this year, Oriental Leaf’s share of the sugar-free tea market has exceeded 70%.

Zhong Suisui, founder of Nongfu Spring, revealed in CCTV's "Dialogue" program on August 10 this year that although Nongfu Spring's tea beverage business was not profitable in the first six years, the growth curve has begun to rise significantly since 2021. . He predicts that in the first three months of 2023, the company's profits may be between 5 billion and 6 billion yuan, and that 2024 will usher in explosive growth. Zhong Suisui also pointed out that although the number of following varieties on the market has increased from 10 in 2023 to 2,000 this year, this is a natural development process, and in the end only the best brands will be able to gain a firm foothold in the market.

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