Capital Calls-China’s beverage king faces consumption drought

Nongfu Spring

26/03/2021 07:26

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are their own.)
    HONG KONG, March 26 (Reuters Breakingviews) - Concise
insights on global finance in the Covid-19 era.
 
    -------------------------------------------------

    WATERED-DOWN. China's beverage champion may be feeling a bit
parched. The $59 billion Nongfu Spring  9633.HK  on Thursday https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0325/2021032500638.pdf
 reported sales of $3.5 billion for 2020, down roughly 5%. The
company doesn’t break out details, but analysts at CITI estimate
sales of bottled water, which make up 60% of the total top-line,
fell 6% in the second half. Boss Zhong Shanshan, China’s
second-richest man, blamed Covid-19 and summer floods that
disrupted logistics.    
    Those factors are temporary, as strict pandemic lockdowns
across the People’s Republic lift and seasons change. Even so,
China’s consumption recovery remains slow. Seasonally-adjusted
retail sales on average shrunk slightly by 0.4% in January and
February, while the unemployment rate rose to 5.5% in February -
above pre-virus 2019 levels. That puts Nongfu's eye-watering
valuation at risk. Since its blockbuster September debut
 urn:newsml:reuters.com:*:nL4N2FU09V, the stock has dropped 40% from its peak but still
fetches 57 times expected earnings, well above liquor group
Kweichow Moutai's  600519.SS  46 times, according to Refinitiv.
(By Yawen Chen)

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 (Editing by Robyn Mak and Katrina Hamlin)