In the face of existing competition, can Nongfu Spring's gross profit margin moat hold up?

Ask AI · How will rising raw material costs affect the company’s profit moat?

The company has evolved from a single growth model that previously relied on packaged water into a “packaged water + tea beverages” dual-engine driver

Investment Time Network · Punctuate Finance Researcher Wang Zixi

With China’s packaged drinking water industry entering a mature, stock-based competitive landscape, Nongfu Spring (09633.HK) has turned in its latest set of results.

The data show that the company’s revenue has surpassed the 50-billion-yuan threshold, reaching 52.553 billion yuan, up 22.5%; attributable net profit has also increased to 15.868 billion yuan, up 30.9%. A rough calculation puts the company’s attributable net profit margin at about 30.2%, the highest in recent years. From 2020 to 2024, this figure rose from 23.1% to 28.3%.

In the 2025 annual report address section, Nongfu Spring Chairman Zhong Shanshan specifically mentioned, “Congratulations to the new management team; they have stood up to the test of public opinion and have become increasingly mature.”

Investment Time Network · Punctuate Finance Researcher notes that the so-called “test of public opinion” refers to the fact that starting at the end of February 2024, the company was hit by online attacks, subjecting the Nongfu Spring brand image to a historic test. In the second half of 2024, the heat of public opinion gradually cooled, but the impact on sales—especially packaged drinking water—remained ongoing. As a result, in 2025 the company’s packaged drinking water unusually recorded a decline in revenue, with revenue at 15.952 billion yuan, down by more than 20%.

Therefore, the recovery of growth in the drinking water business in 2025 has become a key focus for the company on its business segments. According to the financial report, in 2025 the company’s drinking water business achieved revenue of 18.709 billion yuan, up 17.3%, with its revenue contribution accounting for 35.6%.

At the same time, the company, as always, places great importance on the layout of its water source locations. Nongfu Spring has adhered since 1996 to building plants at water source sites and bottling directly at those sites. In 2025, it added three new water source locations: Bada Gongshan in Hunan, Longmenshan in Sichuan, and Nyainqentanglha in Tibet. In early 2026, it added another water source location: Jiaozi Xueshan in Yunnan. Currently, the company has water sources located across 16 regions nationwide.

In the tea beverage segment, over the past year, the core product “Oriental Leaf” has continued to expand its consumer base and drinking scenarios by rolling out new flavors and new specifications. The company has also launched a carbonated tea new product, “Iced Tea,” further enriching its product matrix.

For the full year, tea beverages contributed 21.596 billion yuan in revenue, up 29.0%, with revenue contribution accounting for 41.1%. This is also the first time after 2024 that the company’s tea beverage business once again surpassed its water business in revenue, becoming the company’s largest revenue category. Functional beverages and juice beverages also recorded revenue growth rates of 16.8% and 26.7%, respectively. The revenue scale of both categories has reached over the 5.1-billion-yuan platform, and especially the former has exceeded 5.7 billion yuan.

It is worth noting that although the company’s drinking water business has returned to growth, overall it is based on a low base recovery after the public opinion shock in 2024. When looking over a longer time horizon, the revenue scale of this business has not returned to the level of 2023. In 2023, the company’s drinking water business revenue was 20.262 billion yuan.

Meanwhile, with the domestic packaged drinking water market’s stock-based pattern firmly established and incremental growth reaching its peak, industry tailwinds fading, Nongfu Spring cannot break away from the overall trend to chart an independent growth curve. Its growth logic may only remain in two paths: seizing market share in the existing stock market, and upgrading the product structure toward higher-end offerings. With intense competition—such as from competitors like C’estbon and Wahaha—heating up, price wars continue to escalate and gradually seep from lower-tier cities into the core markets of first- and second-tier cities. If companies join the game, their profit margins may be squeezed.

Nongfu Spring’s 2025 revenue and revenue share by product category

Source of data: earnings announcements

In 2025, Nongfu Spring’s profitability was basically stable, with its gross margin rising to 60.5%, up 2.4 percentage points from the previous year. The company attributes the increase in gross margin to declines in raw material costs such as PET, paper boxes, and white sugar. At the same time, the company sells through e-commerce channels in a controlled proportion, better stabilizing the pricing order within the distribution system.

A research report from GF Securities shows that it expects the company’s operations to remain positive this year. Supported by supply-chain construction and brand-strength upgrades, the market share of each category is expected to continue improving. However, due to external factors, it expects raw material prices such as PET to rise significantly, which may create some pressure on the company’s profitability.

CITIC Securities, on the other hand, believes that in the short term the company’s market share in packaged water still has room for recovery. Sugar-free tea is expected to maintain high growth, benefiting from the health-focused trend. On the profit side, since some packaging material costs are locked in at fixed prices, the full year is expected to see profitability margin improvement driven by product structure.

With one side facing intractable battles for the stock market and latent concerns about rising input costs, and the other side relying on performance support from structural upgrades and category tailwinds, under an apparently positive fundamental backdrop, whether Nongfu Spring can truly break through growth constraints and defend its high-gross-margin profit moat is still a key question urgently needing verification by the market.