Haitong International: Profit growth in the beverage industry is significantly faster than revenue. Demand has seen mild growth over the past 26 years, driven by travel and dining.

HAITONG INT'L releases research report stating that the profit growth rate of the beverage industry in 2025 will be significantly faster than revenue. In terms of prices, discounts on soft drinks have continued to deepen in the second half of 2025, competition in the packaged water and carbonated categories is intense, while ready-to-drink tea is relatively stable. The price war in packaged water is expected to improve within the year due to the control of leading companies, rising inflation expectations, and other factors. On the demand side, during the Qingming holiday, there was a 6% increase in people moving around compared to the previous year, with key retail and catering enterprises seeing a daily sales increase of 2.4%. The upcoming "May Day" holiday and other long holidays are expected to further stimulate the economy. In terms of costs, it is expected that the cost dividend in the first half of the year will continue, but margins will converge, and PET prices may impact profit visibility in the second half due to geopolitical fluctuations. HAITONG INT'L's main points are as follows: - Profit growth rate of the beverage industry in 2025 is significantly faster than revenue, functional beverages and sugar-free tea are thriving, and the strong continue to be strong. - In 2025, the six major publicly listed companies in the soft drink industry (Easroc, Nongfu, Master Kong, Uni-President China, China Resources, China Foods) saw a 6.1% year-on-year increase in revenue, a 21.9% year-on-year increase in net profit attributable to shareholders, and a median increase of 0.3/0.4 percentage points in gross profit margin/net profit margin. Leading companies in the functional and health-oriented segments achieved high revenue growth and profit recovery, while comprehensive companies like Master Kong are under pressure due to their beverage business compared to their internet video business. - By category: Functional beverages and electrolyte water saw significant growth, while ready-to-drink tea exceeded packaged water as the largest category for the first time. - Major company operations highlights: Easroc Beverage saw strong growth in energy drinks and electrolyte water, expanded to Southeast Asia in its first year and had a promising outlook for the first quarter of 2026. Nongfu Spring saw high growth in tea drinks and improved profitability in its water business, with channel optimization ensuring price stability. Master Kong faced challenges in beverage business but saw instant noodle sales return to positive growth, with digitalization and product structure optimization driving profit recovery. - Cost dividend continued in 2025, with industry inventory growth generally slower than revenue. - Demand is expected to see moderate growth in 2026 driven by travel and dining, with intense competition in the packaged water segment but potential improvement on the horizon. Investment recommendations: As of the end of March, the PE ratios of A/H shares in the food and beverage sector were at historical percentile levels of 10% and 12% respectively, with institutional allocation levels relatively low. In the context of rising risk aversion, return of foreign investment, and seasonal demand support, leading soft drink companies offer good value and safety margins. It is recommended to focus on companies with clear profit recovery paths and high dividends, such as Tingyi and Uni-President China, as well as functional beverage leader Eastroc Beverage with attractive valuation under the impact of sugar taxes, and Nongfu Spring with advantages in category and channel organization. Risk factors: Increased industry competition, fluctuating raw material prices, uncertainty around sugar tax policies, and slower-than-expected consumption recovery.