[ET Net News Agency, 26 March 2025] The Hong Kong stock market continues to focus on
earnings season, with several domestic blue-chip companies exhibiting mixed performances.
The market showed unclear movement, closing at HKD 23,402, up 57 points or 0.2%, with
turnover on the main board nearing HKD 113.8 billion. The Hang Seng China Enterprises
Index stood at HKD 8,625, up 9 points or 0.1%. The Hang Seng Tech Index reported HKD
5,561, up 43 points or 0.8%.

"Nip Chun Pong: If the index cannot recover the 20-day moving average in the short term,
it may test the support at 23,000"

The Hang Seng Index experienced a slight rebound today, but the upward momentum was
insufficient, hovering around 23,400 points. Nip Chun Pong, the Chief Strategist at
Blackwell Global Securities, told ET Net News Agency that the recent performance of Hong
Kong stocks has been rather flat. Although there was some increase today, it still showed
a downward trend, reflecting a wait-and-see attitude among investors. Additionally, the
continued weakening of the Renminbi has also suppressed the performance of Hong Kong
stocks. Short-term attention is on the 20-day moving average (approximately 23,800
points); if it remains unbroken today and tomorrow, the Hang Seng Index may decline, at
which point the focus will shift to the support level of 23,000.

"Price cuts severely impact Nongfu Spring's water business growth; tea drinks face
sustainability challenges"

Nongfu Spring (09633) reported a profit of RMB 12.12 billion for the year ending 31
December, an increase of 0.4%, with earnings per share of RMB 1.078 and a final dividend
of RMB 0.76 per share, slightly up from RMB 0.75 in the same period last year. The group
indicated revenues of approximately RMB 42.9 billion, up 0.5%, with packaged drinking
water revenues down 21.3% and tea beverage revenues up 32.3%.
Nip Chun Pong noted that Nongfu Spring has frequently engaged in price-cutting
promotions to maintain its market share in the drinking water sector, which has put
pressure on the company's performance. He further pointed out that the drinking water
industry is highly competitive, and it is expected that the number of competitors will
continue to rise, increasing the operational challenges for the company. Should the
pressure from price cuts escalate further, there is a possibility that future performance
may decline.
It is also noteworthy that CR Beverage (02460) is facing a decrease in drinking water
revenues. Its revenue from small-sized bottled water products fell nearly 9% year-on-year
to RMB 7.028 billion, while revenue from medium and large-sized bottled water products
rose 8.5% year-on-year to RMB 4.607 billion. Revenue from barrel water saw a slight
increase of less than 1% to RMB 489 million, while beverage product revenue surged nearly
31% to RMB 1.397 billion.
Nip Chun Pong believes that the decline in drinking water business revenue may reflect a
broader industry trend, primarily due to relatively weak economic activity last year,
which led to a decrease in business meetings and, consequently, a drop in demand for
bottled water. He stated that if business activities increase and the economic situation
improves this year, demand for bottled water is likely to rebound, potentially benefiting
the company's performance. Additionally, the consumer stimulus plan announced in
mid-March, if effective in boosting economic growth, may also enhance market expectations
for improvements in Nongfu Spring's performance. However, this impact will need to be
validated by economic data over the next month or two.
The revenue from the drinking water business is currently facing growth challenges,
relying heavily on lower-margin specialty beverage products for support. Nip Chun Pong
indicated that the proportion of tea beverage products in Nongfu Spring's revenue is
gradually increasing. If the drinking water business cannot show a rebound in performance,
the company may adjust its market strategy this year towards tea products, introducing new
flavours to attract younger consumers, thereby improving overall performance. However, it
should be noted that with the substantial increase in the tea beverage business's base,
uncertainty remains about whether the company can sustain such high growth rates in the
future.
Regarding gross margins, Nongfu Spring reported a total gross profit of approximately
RMB 24.9 billion, down 1.9%, with the gross margin falling by 1.4 percentage points to
58.1%. The company explained this decline was due to promotional activities for new
purified water products and rising juice raw material costs. Nip Chun Pong believes these
factors may exert ongoing pressure on the company's gross margin. Unless the company's
revenues can recover and achieve economies of scale, the gross margin will continue to
face downward risks.