Bottled water firm opens 85% up in Hong Kong

Ding Yining
Hangzhou-based Nongfu Spring sells 388.2 million shares on its HK debut and the beverage maker ended its first day 54 percent up when the market closed on Tuesday.
Ding Yining

Bottled water and beverage maker Nongfu Spring Co opened up 85 percent from the offering price on its Hong Kong debut with investors betting on a strong performance in consumer sectors.  

The company sold 388.2 million shares, raising about US$1.1 billion, and closed up 54 percent on Tuesday.

The Hangzhou-based firm intends to use the proceeds for brand building, purchasing equipment and expanding production sites.  

Although bottled water still contributes the majority of its income, sales of tea and other drinks are picking up, making up 42.4 percent of total revenue in 2019.

The company diversified beyond drinking water to cater to more diverse tastes with fruit juice and other beverages.

The different product mix based on the characteristics of different markets and channels has helped the company maximize sales.

However, beverage sales suffered losses in the wake of the coronavirus outbreak after outdoor activities were limited.  

A Frost and Sullivan report found the company had maintained the largest share of China’s packaged drinking water market from 2012 to 2019, with that sector and the beverage market enjoying an annual compound growth rate of 11.0 percent and 4.8 percent between 2014 and 2019. 

Nongfu Spring’s revenue and net profit in the five months ending May was down by 12.6 percent and 18.2 percent from a year ago, and beverages suffered sharp losses with a 24.5 percent decline after the closure of schools, scenic areas and sports facilities.

Its cornerstone investors include Fidelity, hedge fund Coatue and Singapore sovereign wealth fund GIC.

According to the Frost and Sullivan report, the market concentration of the soft beverage market in China is relatively low with the top 10 players occupying an aggregate market share of 42.5 percent in terms of retail sales value in 2019.

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