Nongfu Spring: From defense to offense; the 'water Moutai' soars! ---

Nongfu Spring: From Defense to Offense, the 'Water Moutai' Goes on a Tear

On the evening of Mar 24 (Beijing time), Nongfu Spring (9633.HK) reported H2 2025 results. Backed by an aggressive '10k-store displays' push, packaged water and tea drove strong growth, delivering a clear beat.

Key takeaways: $NONGFU SPRING(09633.HK)

1) Packaged water profitability at a new high: In H2 2025, packaged water revenue reached RMB 9.27bn (+25% YoY), with momentum accelerating after returning to positive growth in H1. On execution, Nongfu rolled out mass case-stack displays and shelf exclusivity across supermarkets, CVS and community stores during peak season to tighten control at the point of sale. Leveraging green-cap placements to secure prime display, it then shifted mix toward red-cap. Channel checks indicate red-cap now accounts for ~82% of packaged water revenue (vs. a trough of 75%), lifting OPM to a record 39.4%.

2) Tea becomes the top growth engine: Tea revenue was RMB 11.5bn in H2 2025 (+38.4% YoY), surpassing packaged water to become the largest growth driver. In winter, Nongfu rolled out hot-beverage cabinets nationwide, repositioning Oriental Leaf from a cold drink to a winter hot option and broadening use cases materially. Despite a modest give-back from the 'RMB1 Enjoy' promotion that nudged OPM down QoQ to 47.7%, tea remains Nongfu’s most profitable segment.

3) Functional drinks & juice: faster product iteration: Benefiting from accelerated distribution of electrolyte water ('Liangli Di') and a full refresh of the Scream lineup, functional drinks grew 20% YoY in H2, slightly beating expectations. For juice, ongoing premiumization helped the 17.5° NFC range launch 1L family packs in H2, tapping breakfast and gatherings; juice OPM hit a record 37.3%.

4) GPM kept improving. Key inputs and packaging (PET, corrugated) stayed at low levels in H2, while red-cap water and other high-GPM categories (electrolyte water, NFC juice, 'Liangli Di') ramped. As a result, GPM expanded 340bps to 60.7% in H2.

5) Operating leverage unlocked, profit beat. On selling, Nongfu phased out inefficient TV ads, shifting to short videos and live-streaming, and boosted cooler displays to curb wasteful promotions; the S&M ratio fell 250bps to a record-low 17.8%. Admin costs rose on stock-based comp and digitalization outlays, but net margin still reached 30.6%, ahead of consensus.

6) Financial snapshot:

Dolphin Research view:

In our view, Nongfu delivered another across-the-board beat in H2. The print was bright on all fronts.

Starting with packaged water, competitors like C'estbon and Wahaha continued regular promotions in H2, cutting prices across community supermarkets, CVS and e-commerce. The price war spilled from lower-tier cities into core Tier-1/2 markets, trading price for volume and eroding the industry’s price structure. High-frequency trackers from foreign brokers also showed a declining packaged-water price index in H2, raising concerns that Nongfu might be forced to cut prices and sacrifice margins.

Meanwhile, the market worried that Nongfu’s aggressive '10k-case displays' push would require heavy rebates and large slotting/stacking fees for distributors. This could, in turn, weigh on packaged water profitability.

In practice, Nongfu stayed out of the price war, replacing discounts with targeted channel execution. The green-cap’s lower-price strategy was confined to lower-tier markets and did not disrupt the red-cap price system, allowing green-cap to 'secure the slot' and funnel traffic back to red-cap. On trade marketing, Nongfu abandoned one-size-fits-all lump-sum stacking fees, adopting tiered, precision spending: heavier in core stores, lighter in standard stores. This reflects improved digital channel management, akin to Dongpeng Drinks. As a result, packaged water delivered faster growth and a new high in profitability—the standout highlight in our view.

For tea, the setup was similar. With Suntory, Guozishule and major dairies (Yili, Mengniu) piling into sugar-free tea, concerns rose that Oriental Leaf might cut prices to defend share in a more crowded track.

In reality, prices held, and H2 saw a stronger push for 1.5L large packs, effectively lifting basket size. Channel checks suggest many consumers sampled new entrants but churned back due to uneven taste and unstable supply, underscoring Oriental Leaf’s product strength. That said, given already-elevated expectations for Nongfu’s sugar-free tea, the upside surprise was less dramatic than in packaged water.

On valuation, water and tea are each approaching RMB 20bn in annualized scale. Assuming growth naturally moderates and profit rises 15% in 2026, a 25x multiple looks fair. If refined channel ops continue to lift share in both water and tea in 2026, the multiple could re-rate to 30x, implying ~20% upside. Investors can calibrate exposure based on risk appetite.

Detailed earnings takeaways:

As disclosure is by four categories—packaged water, tea, functional drinks and juice—we follow the same structure below.

I. Overall: sequential acceleration

H2 2025 revenue was RMB 26.93bn (+30% YoY) and net profit RMB 8.25bn (+40% YoY). With the high-intensity '10k-store displays' push, packaged water and tea drove strong topline, while better ops unlocked operating leverage. Profit growth accelerated, delivering a comprehensive beat.

II. Packaged water: profitability at a record

H2 2025 packaged water revenue was RMB 9.27bn (+25% YoY), with growth further accelerating vs. H1’s recovery. Building on market share secured by the green-cap, the company leaned into red-cap, upgrading mix by substituting red for green. Channel checks show red-cap’s share of packaged water sales rose from 78% in H1 to ~82% by year-end.

On tactics, Nongfu set stricter shelf-share rules for distributors in H2, requiring a red:green display ratio of at least 7:3. Distributors failing to meet red-cap display targets would miss out on sizeable quarter-end rebates. Nongfu also tweaked tiered rebates: despite higher throughput, per-case rebates on green-cap were compressed, while per-case incentives on red-cap increased. This nudged shop owners to place red-cap in prime spots such as checkout areas.

In 2025, Nongfu also stepped up promotion of larger red-cap packs (1.5L, 2L, 4L). As these ship mainly to households and F&B channels, replacing tap water for cooking and tea, consumers prioritize water source quality—a strong fit with red-cap’s positioning. With red-cap mix up, packaged water OPM climbed to 39.4%, a new high.

III. Tea: sequential acceleration

H2 2025 tea revenue was RMB 11.5bn (+38.4% YoY), overtaking packaged water to become the top growth engine. In winter, Nongfu deployed hot-beverage cabinets nationwide, repositioning Oriental Leaf as a winter hot drink and materially expanding consumption scenarios. In H2, it also pushed 1.5L large packs harder; while priced higher per bottle, cost per ml is lower, encouraging heavy users to stock up. With a prolonged summer, large packs added sizable incremental revenue.

Leveraging Oriental Leaf’s dominance, Nongfu secured display parity with packaged water across channels. Despite a flood of 2025 entrants into sugar-free tea, their scale is far below Oriental Leaf; channel checks suggest Nongfu’s sugar-free tea share topped 80% at times in H2, effectively an oligopoly. Profitability remains robust: even with the 'RMB1 Enjoy' promotion trimming OPM QoQ to 47.7%, tea is still the most profitable segment.

IV. Functional drinks & juice: faster iteration

Although these segments lack first-mover advantages and get fewer resources than water & tea, both delivered strong H2 results. Functional drinks (Scream, 'Liangli Di', etc.) posted RMB 2.86bn revenue in H2 (+20% YoY), with a sequential pickup. Growth was driven by faster rollout of electrolyte water ('Liangli Di') and a comprehensive upgrade of the Scream product matrix.

Juice revenue reached RMB 2.61bn (+33% YoY). The 17.5° NFC orange juice stood out: riding the health trend and a late-2024 tie-up with Sam’s Club, NFC orange became a hit, expanding household consumption. More notably, with premiumization, juice OPM jumped 1,000bps in H2 to 37.3%.

IV. GPM: sharp expansion

Key inputs and packaging (PET, corrugated) stayed low in H2, while red-cap water and other high-GPM categories (electrolyte water, NFC juice, 'Liangli Di') scaled. GPM expanded 340bps to 60.7% in H2.

V. Operating leverage lifted profitability

Nongfu phased out inefficient TV ads in favor of short videos and live streams, and strengthened cooler displays to cut wasteful promotions; the S&M ratio fell 250bps to a record-low 17.8%. Admin costs rose due to SBC and digitalization investments, but net margin still reached 30.6%, beating expectations.

Longbridge Dolphin Research on 'Nongfu Spring': archive

Earnings season

Aug 26, 2025 take: Nongfu Spring: Green-cap exits, red-cap takes over — the 'Water Moutai' returns

Mar 25, 2025 take: Nongfu Spring: Has the 'porter of nature' run out of steam?

Aug 27, 2024 take: 'Plunge' in Nongfu Spring: Don’t panic — will the richest step down?

Aug 27, 2024 call notes: Nongfu Spring minutes: With big sellers rotating, what exactly was said?

Aug 25, 2022 take: Nongfu Spring: Tea defies the cycle — the 'Water Moutai' can’t hold back in H2

Aug 25, 2022 call notes: Tea becomes the next growth engine

Mar 30, 2022 call notes: FY 2021 earnings call notes: sales target largely met

Mar 28, 2022 take: Nongfu Spring: the 'Water Moutai' returns

Aug 25, 2021 take: Nongfu Spring: the 'Water Moutai' is back, but valuation risks remain

Mar 29, 2021 call notes: Nongfu Spring 2020 earnings call notes

Mar 26, 2021 take: Nongfu Spring: any 'watered-down' numbers?

Deep dive

Jul 20, 2021: Nongfu Spring (Part II): how much rational upside remains?

Jul 14, 2021: Nongfu Spring (Part I): a story about the source

Risk disclosure and disclaimer: Dolphin Research disclaimer and general disclosure