PEP - Nongfu Spring Makes Major New Investment Amid Profit Pressures | Benzinga
Key Takeaways:
- Nongfu Spring will invest 5 billion yuan with the city of Jiande in Zhejiang province to build a new production base for its drinking water and other beverage products
- With gross and net profit margins of 60% and 28%, respectively, the company far outperforms its Mainland Chinese peers in terms of profitability
By Ken Lo
After consolidating its place as leader of China’s bottled water market, Nongfu Spring Co. Ltd. (9633.HK), known for its trademark red-and-green bottles of drinking water, is flowing into a major new investment in its home province of Zhejiang.
The company announced on Dec. 31 it will invest 5 billion yuan ($698 million) over five years with the city of Jiande after receiving 1,000 mu (667 square meters) of industrial land for the project. With a cash and bank balance of 24.7 billion yuan at the end of last June, the company has more than ample resources to cover such a massive investment.
The Jiande project will produce and process drinking water, beverages and related products and be built in two phases, the first covering an area of about 700 mu and the second the remaining 300 mu, Nongfu said. It will rely on natural water resources from Qiandao Lake near the provincial capital of Hangzhou.
Nongfu made a splash with its Hong Kong listing in 2020, raising HK$9.38 billion ($1.2 billion) in one of the year’s biggest such fundraisings for a leading consumer brand. At the time, it said it would spend HK$1.88 billion of the proceeds to acquire production facilities and build new plants, with HK$440 million of that still unspent at the middle of last year. That fund pool is expected to run dry by the end of this year, partly to finance the new Jiande project.
China’s bottled water market looks like a strong long-term bet, currently supplying just 15.5% of the nation’s drinking water needs. But the sector is also brimming with competition from both local players ...