NONGFU Spring shares plunged to its lowest point since its listing in 2020 after posting the slowest half-year profit growth in four years as China’s top bottled water producer battled a price war and a series of public relations challenges.
The share price slumped by as much as 12.9 per cent on Wednesday (Aug 28), the biggest drop since January 2022, to HK$26.3.
Net income rose 8 per cent to 6.24 billion yuan (S$1.1 billion) over the first six months, according to a stock exchange filing late on Tuesday. Revenue increased by 8.4 per cent to 22.17 billion yuan, less than expected.
Nongfu and founder Zhong Shanshan has faced a barrage of online criticism this year, which briefly knocked him from the position of China’s richest man earlier this month. The company has also been rolling out heavy discounts for its core water products as it seeks to take market share from both long-time rivals and upstart brands in a weak consumer landscape.
This year Nongfu introduced a new purified water product in direct competition with C’estbon, a brand under major rival China Resources Beverage Holdings. The product is sold for less than one yuan per 550-millilitre bottle on e-commerce platforms including Alibaba Group Holding’s Tmall.
“The competition among brands is increasingly intense.” Nongfu said. The company added that “due to the online public opinions in the first half of the year, the group’s brand reputation and sales of packaged drinking water products has been adversely impacted.”
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Nongfu’s revenue from its packaged drinking water products fell by 18 per cent over the first half, with the segment’s proportion of total revenue dropping to about 39 per cent, from around 48 per cent last year. The decline was attributed to negative public opinion towards the company and Zhong since the end of February.
Zhong and his company faced scrutiny on Chinese social media after the death of Zong Qinghou – founder Hangzhou Wahaha Group – with some users recapping what they alleged were tricks Nongfu had used to gain an advantage over its competitor. Months later, a report from Hong Kong’s Consumer Council questioned the quality of Nongfu’s water, which it later clarified.
The Hong Kong-listed company’s shares have taken a heavy hit and are down 33 per cent this year. At least five brokerages, including Goldman Sachs Group and Jefferies Hong Kong, lowered their targets for Nongfu in July.
Separately, Haidilao International Holding Ltd. also reported first-half earnings that missed estimates. The operator of hot pot restaurants posted net income of 2.04 billion yuan, 9.8 per cent lower than a year earlier. BLOOMBERG
