China Resources Beverage aims for Hong Kong stock market listing: Annual sales of 'Little Green Bottle' reach 14.6 billion units, liquidity risks need attention

The competition in the bottled water industry in the secondary market is heating up with another giant's IPO plan.

On the evening of April 22, China Resources Beverage (Holdings) Co., Ltd. submitted its listing application to the Hong Kong Stock Exchange, with joint sponsors including BOCI, CITIC Securities, Merrill Lynch, and UBS. As a subsidiary of China Resources Group, if successfully listed, it will become the ninth listed company of China Resources Group in the Hong Kong stock market.

Mentioning only China Resources Beverage might sound unfamiliar to investors who don’t know the company well, but few investors would be unaware of "C'estbon," a nationally popular purified water brand owned by China Resources Beverage.

As a bottled water brand rivaling Nongfu Spring, why has C'estbon's parent company chosen to go public at this time? And how does the company’s fundamentals look? Based on the prospectus data, this article provides a brief analysis.

01

Owning the "Super Single Product" C'estbon, But Only C'estbon Shines

According to the prospectus, the "C'estbon" brand is one of China’s earliest professional producers of packaged drinking water. Its predecessor was jointly established by China Merchants Shekou Industrial Zone Water Supply Company and China Dragon Ring Co., Ltd. In 1999, the brand was acquired by China Resources Group as a wholly-owned subsidiary, becoming the foundation of its beverage business.

According to CIC data, after 40 years of development, C'estbon is now the largest purified water brand and the second-largest packaged drinking water brand in China. In 2023, China Resources Beverage sold over 14.6 billion bottles of C'estbon water, with retail sales reaching RMB 39.5 billion, accounting for 32.7% of the purified water market.

In the purified water market, C'estbon undoubtedly holds a leading position. However, in the broader packaged drinking water market, China Resources Beverage has been the "runner-up" for ten years. According to CIC reports, from 2014 to 2023, China Resources Beverage ranked second in retail sales of packaged drinking water for ten consecutive years, trailing only Nongfu Spring, owned by China’s richest man, Zhong Shanshan.

The reason may lie in China Resources Beverage’s reliance on C'estbon as its flagship brand while lacking strong secondary brands. The prospectus shows that besides C'estbon, China Resources Beverage owns 13 other brands, some of which were once popular but none have achieved leading market positions except "Zhiben Qingrun" in the chrysanthemum tea market.

(Source: Company Prospectus)

According to the prospectus, among its beverage brands, only five—"Zhiben Qingrun," "Mishui Series," "Holiday Series," "Fire Coffee," and "Afternoon Milk Tea"—generated sales exceeding RMB 100 million. By 2023, the company’s beverage revenue totaled RMB 1.068 billion, accounting for only 7.9% of total revenue. In contrast, its rival Nongfu Spring’s beverage revenue accounted for 52.5% in 2023, surpassing its packaged water business.

Notably, most of the company’s beverage products are sugary drinks, with only "Zuowei Chashi" tea and "FEEL" soda as sugar-free options, making it somewhat "out of sync" with the current market trend favoring sugar-free and tea-based beverages.

China Resources Beverage’s strategy for its water products follows a "one super, many strong" brand matrix. However, currently, only C'estbon meets expectations, while its beverage business urgently needs strengthening. This may be why the company is pursuing an IPO now. According to the prospectus, the raised funds will be used to improve supply chain efficiency, accelerate sales channel expansion, strengthen brand vitality, expand new product categories, and enhance digital capabilities.

02

Profitability Gradually Improves, but Liquidity Risks Demand Attention

Financially, the prospectus shows that from 2021 to 2023, China Resources Beverage achieved revenues of RMB 11.34 billion, RMB 12.623 billion, and RMB 13.515 billion, with growth rates of 11.3% and 7.1% in 2022 and 2023, respectively, indicating a slight slowdown. Gross margins during this period were 43.8%, 41.7%, and 44.7%, showing recent fluctuations and improvement. Net profit margins rose from 7.6% in 2021 to 9.9% in 2023, reflecting a clear upward trend.

(Source: Company Prospectus)

As mentioned earlier, most of the company’s revenue comes from C'estbon’s purified water business, which is also the main reason for its lower gross margins compared to Nongfu Spring. In 2023, packaged water accounted for 92.1% of total revenue, mostly from small "green bottle" products.

However, the share of beverage revenue increased from 4.6% in 2021 to 7.9% in 2023. As this segment grows, gross and net margins have also improved. Continued expansion in beverages could further enhance profitability.

On the expense side, China Resources Beverage’s major costs are in sales and marketing, which accounted for 30% of revenue in 2023. The prospectus states that sales expenses were mainly for promotions, including sponsorships of marathon events and commercial refrigerators. Given the company’s strategic focus, marketing expenses are expected to rise further to break its reliance on a single product.

As of March 2024, the company’s cash and equivalents stood at RMB 2.075 billion, down RMB 432 million from the end of 2022, primarily due to RMB 2.09 billion in investment activities. The prospectus notes that these investments mainly involved financial assets measured at fair value, resulting in an outflow of approximately RMB 1.17 billion.

Notably, despite growing equity, current assets declined significantly by the end of 2023, with the current ratio (current assets/current liabilities) dropping to 1.07 from 1.72 in 2021, indicating deteriorating short-term solvency and entering a risky zone.

The prospectus reveals that as of December 31, 2023, the company had RMB 5.034 billion in payables due within six months, representing 97% of total current liabilities. With only about RMB 2 billion in cash, the company faces a severe liquidity crisis, even if some liabilities can be extended.

Although the prospectus lists working capital replenishment as a lower priority, the urgency of addressing liquidity may be the real reason for the IPO. Based on the industry’s current P/E ratio (28-30x), China Resources Beverage’s valuation could range between RMB 36-40 billion, enough to resolve short-term liquidity risks and fund new product investments.

03

Final Thoughts

The packaged water industry is closely tied to daily life, with leading brands familiar even to those outside capital markets. In the purified water segment, notable competitors include Nongfu Spring, C'estbon, Master Kong, Wahaha, and Uni-President. Given its maturity, the industry is highly competitive, with brand loyalty minimal—consumers often switch based on taste and affordability. Finding new growth and improving profitability in this market is exceptionally challenging.

Take Nongfu Spring, for example. Its recent success stems from the booming sugar-free tea market, China’s tea culture, and decades of brand-building for "Dongfang Yezhi" (Oriental Leaf). With the tea beverage market now saturated, whether China Resources Beverage should continue competing in this space remains a question.

Should it keep developing its underperforming beverage "second leg," explore new growth avenues, or simply raise funds to ease debt pressure? The path for China Resources Beverage is unclear, and its IPO outcome and future performance await time’s verdict.