09633 Overview

Lunar New Year Consumption Performance: The Lunar New Year holiday showed strong demand in catering and tourism, prompting Daiwa to recommend stocks like GUMING and YUM CHINA that benefit from this trend.

Economic Reflation Signs: The report highlighted initial signs of reflation in the Chinese economy driven by service consumption, with rising prices and reduced promotions in various sectors.

Catering Sector Outlook: Daiwa remains optimistic about GUMING and YUM CHINA, suggesting that a broader recovery in catering could enhance alcohol consumption at venues, while also favoring NONGFU SPRING and TINGYI due to domestic tourism.

Caution on MIXUE GROUP: Despite the positive outlook for many stocks, Daiwa expressed caution regarding MIXUE GROUP due to uncertain profit growth visibility, maintaining a Neutral rating.

Goldman Sachs Forecast: Goldman Sachs predicts NONGFU SPRING will achieve RMB51.1 billion in sales and RMB15.2 billion in net profit for 2025, reflecting year-on-year growth of 19% and 26%, respectively.

Revised Projections: The broker has raised its revenue and net profit forecasts for 2025-27 by 1-2% and approximately 2%, with a target price increase from HKD58.6 to HKD60 and a reiterated Buy rating.

Market Recovery: NONGFU SPRING reported a rapid recovery in market share for packaged water and strong customer retention for ready-to-drink tea beverages in 4Q25, with expected revenue growth of 25% YoY for these segments.

Financial Projections: Daiwa forecasts a 23% YoY increase in revenue and a 28% YoY increase in net profit for NONGFU SPRING in 2H25, leading to a 2% upward revision in the 2025 EPS forecast.

Future Focus: Looking ahead to 2026, NONGFU SPRING plans to continue prioritizing its packaged water and ready-to-drink tea businesses to sustain growth.

Broker Rating Update: Daiwa maintained a "Buy" rating for NONGFU SPRING while raising its 12-month target price from $59 to $58, with a target PE ratio of 33x.

US Stock Market Performance: US stocks fell 398 points (0.8%) following JPMorgan's earnings report, while chip stocks saw increased interest.

Hong Kong Market Opening: The Hong Kong bourse opened higher, with the HSI up 123 points (0.5%) and notable gains in tech stocks like BABA-W and TENCENT.

Inflation Rate in China: China's inflation rate for December was reported at 0.8%, slightly above the previous 0.7% but below the forecast of 0.9%.

Pharmaceutical Sector Activity: Several pharmaceutical stocks, including HANSOH PHARMA and BEONE MEDICINES, opened higher, while PHARMARON anticipated a decrease in full-year profit but still saw a slight increase in stock price.

Sector Performance Overview: China's consumer staples sector showed a split performance in 2022, with steady growth before the May 18 anti-corruption policy, followed by underperformance due to weak demand and deflationary pressures, although some companies like NONGFU SPRING managed to grow.

Future Recovery Outlook: Goldman Sachs predicts that the sector's recovery by 2026 will hinge on reflation processes and policy direction, emphasizing the need for expanding domestic demand and focusing on themes like market bottoming, channel reshuffling, and competition dynamics.

BofAS Predictions: BofAS anticipates that the consumer sector may bottom out in the second half of 2026, particularly with a cyclical recovery in spirits and dairy, alongside growth in ready-to-drink products, driven by the revival of business banquets and high-end demand.

Sector-Specific Trends: The dairy sector is expected to rebalance supply and demand in 2H26 due to upstream production cuts and policy support, while categories related to dining, such as beer and prepared foods, will benefit from low base effects and cyclical recovery.

Downgrade and Valuation Changes: Daiwa downgraded MIXUE GROUP from Outperform to Hold, reducing its target price from $535 to $427 and lowering the projected 2026 PE ratio from 28x to 22x due to concerns over future earnings growth and the validation of its overseas market expansion.

Sales Growth and Market Expectations: Despite a resilient same-store sales growth post-subsidy wave, Daiwa believes the market may have overly high expectations for MIXUE GROUP's second growth engine, which is yet to be proven.

Market Positioning and Innovation Limitations: Daiwa noted that MIXUE GROUP's mass market positioning restricts its product innovation and pricing flexibility compared to mid-tier competitors like GUMING and Luckin Coffee.

Business Model Comparison: The report likened MIXUE GROUP's business model and long-term advantages to TINGYI, highlighting its strong franchisee network and supply chain benefits, particularly in lower-tier cities.