Goldman Sachs lowers the target price for CR BEVERAGE to 9 yuan, with channel reforms continuing into the first half of this year and intense competition

Goldman Sachs reported that CR Beverage (02460.HK) announced the resignation of Chairman and Executive Director Zhang Weitong, and appointed Gao Li as Chairman and Executive Director. Gao Li previously worked in the finance department of China Resources Group and CR Beverage from 2012 to 2020. Goldman Sachs did not comment on this management change but believes that CR Beverage may still be in a transitional period of channel reform in the second half of 2025 against the backdrop of intensified industry competition (especially in the packaged water business).

Goldman Sachs expects CR Beverage's sales and net profit for the fiscal year 2025 to decline by 17.8% and 39% year-on-year, respectively, while anticipating a gross margin of 43.3% in the second half of 2025. The impact of deleveraging on the sales side will be partially offset by the decline in raw material costs (PET/sugar) and an increase in the self-produced ratio (expected to reach 60%). Goldman Sachs expects the net profit margin in the second half of 2025 to be 3.5% (compared to 8.4% in the second half of 2024 and 8.9% for the full year of 2025), mainly due to increased advertising expenses and market investments in the second half. Goldman Sachs also anticipates that CR Beverage will gradually increase its dividend payout ratio, with upside potential.

Looking ahead to 2026, Goldman Sachs expects CR Beverage to continue implementing channel reforms to achieve sustainable revenue growth, and 2026 is also the starting year of its "14th Five-Year" plan. CR Beverage will continue to negotiate processing fees/optimize processing structure and focus on improving cost efficiency in 2026.

Goldman Sachs has lowered its earnings forecast for CR Beverage for 2025 to 2027 by 8% to 15%, mainly due to operational deleveraging and ongoing brand and market investments, but partially offset by cost tailwinds in the second half. For 2026 to 2027, Goldman Sachs expects CR Beverage's earnings to recover to double-digit growth, driven by revenue recovery, cost savings, and an increase in the self-produced ratio. Goldman Sachs has lowered the 12-month target price for CR Beverage from HKD 10.5 to HKD 9. The stock is currently trading at 17 times the expected price-to-earnings ratio for 2026, with a compound annual growth rate of 19% for earnings from 2025 to 2027. Maintaining a "Neutral" rating