High Tea Growth Offsets Carbonated Drink Decline, PET Price Drop Benefits Profitability

Overview

Goldman Sachs released a performance commentary on Master Kong Holdings (0322.HK), based on management meeting minutes from July 3rd. The report points out that although macro consumption sentiment was under pressure in May-June, Master Kong maintained a steady operating stance due to strong growth in the tea category and a decline in raw material costs (especially PET). Management holds a more constructive attitude towards the second-half outlook, expecting gross margin to expand due to cost locking benefits. Goldman Sachs maintains its neutral rating with a target price of HK$12.6, favoring its high dividend attractiveness and improved earnings visibility brought by cost improvements.

Core views

Sales channel shows structural differentiation, with tea becoming the core driver. In H1 2026, the company's total beverage sales maintained low single-digit growth. Among them, non-carbonated beverages achieved low single-digit growth, mainly thanks to mid-high single to high double-digit year-over-year growth in the tea sector, especially the iced black tea and sugar-free tea series performed excellently (sugar-free tea grew over 20% in H1). This growth effectively offset the low single-digit decline in carbonated drinks due to intensified competition, as well as the continuous double-digit decline in packaged water and juice. Instant noodle business has maintained monthly positive growth since July 2025, growth momentum is stronger than the beverage segment, and the 2025 price hike strategy was regarded as successful by management. Cost side welcomes significant improvement, earnings visibility increases. PET prices have gradually fallen from a peak exceeding 9,000 RMB/ton in April to around 7,000 RMB/ton currently. If the average PET price in the second half remains at 6,000 RMB level, cost pressure is controllable; even if it stays at 7,000 RMB level, the increase in procurement cost will only be 100-200 million RMB. In addition, the company has locked palm oil costs until the end of 2026, and white sugar costs are also at favorable levels year-over-year. It is estimated that H1 gross margin will expand due to cost locking benefits from Jan-May, enough to offset the slight rise in marketing expense ratio, supporting positive net profit growth. Channel transformation accelerates, value retailers and interest-driven e-commerce rise. Value retailers are the fastest-growing channel, achieving high double-digit growth year-to-date 2026, currently contributing about 7-8% of instant noodle sales and 3% of beverage sales. The company adapts to their rapid expansion through headquarters-to-headquarters cooperation models. Traditional e-commerce is flat, but interest-driven e-commerce like Douyin, Kuaishou, and membership channels like Sam's Club continue to grow. The company also continues to invest in refrigerators and smart vending machines, currently covering about 20% of beverage sales points.

Analysis framework

Goldman Sachs adopts an integrated top-down and bottom-up analytical framework. First, obtain first-hand operational data through management meetings, decomposing quantity and price trends for each category (noodles, beverage sub-categories). Second, focus on analyzing raw material cost cycles, especially the marginal impact of PET price fluctuations on gross margins, and combine with the company's locked palm oil costs for profit sensitivity calculations. Finally, combine valuation multiples (P/E) and dividend yields to assess whether current stock prices fully reflect fundamental improvements, thereby giving a neutral rating.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Breakdown

  Decompose sales revenue growth into volume changes and price changes, further subdivided by different categories (e.g., tea vs. carbonated drinks) and channels.

  The research report divides the beverage business into carbonated, non-carbonated (tea, water, juice), accurately identifying that tea's high growth is the key to offsetting declines in other categories, helping investors understand the real source of growth.

• Industry/Industrial Analysis FrameworkCost curve analysis

  Track the price trend of key raw materials (PET, palm oil, white sugar) and their impact on production costs.

  The research report focuses on analyzing the trend of PET price falling from highs, combined with the company's lock-price strategy, quantifying the contribution of cost reduction to H2 gross margin recovery, which is an important method for judging the earnings inflection point of cyclical consumer goods.

• Valuation MethodPE/PEG valuation

  Use P/E multiple as the main valuation anchor, and combine with dividend yield for comprehensive assessment.

  Goldman Sachs gives a 15x P/E based on 2027 expected EPS and discounts to derive the target price. At the same time emphasizing approximately 8% dividend yield, indicating that in a slowing growth background, dividend return becomes an important factor supporting valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Master Kong Holdings (0322.HK)

  Beneficiary: Tea high growth and PET cost drop directly benefit profitability recovery

  Strengths

  Tea category strong growth, enhanced cost control capability, high dividend commitment

  Weaknesses

  Carbonated drinks and water/juice categories continuous decline, macro consumption sentiment pressure

  Comparison

  Compared to peers, possesses strong brand moat in tea niche, but overall growth limited by broad market environment

  Risks

  Raw material price rebound, intensified market competition leading to increased promotion expenses

Key data

• H1 2026 Sales Growth TargetLow Single-Digit (LSD%)On track as planned
• PET Current PriceApprox. 7,000 RMB/tonSignificant drop compared to April peak of 9,000+ RMB/ton
• Sugar-Free Tea H1 Growth Rate> 20%Outperformed other beverage categories
• Value Retailer Channel ShareInstant noodles 7-8%, Beverages 3%Fastest growing channel
• 2026E P/E12.8xCorresponding to expected net profit of 4.15 billion RMB
• Expected Dividend YieldApprox. 8%Committed 100% payout ratio

Impact & implications

The research report believes that Master Kong is at the confluence of product structure optimization and cost dividend release. The successful transformation of tea proves the company's competitiveness in the non-carbonated field, capable of withstanding overall industry weakness. Cost-side improvements will directly translate into profit elasticity in the second half. For investors, although growth is not explosive, stable cash flow and high dividends provide defensive allocation value. However, due to valuation reflecting some improvement expectations, and macro consumption recovery still existing uncertainty, upside space is limited.

Risks

• Raw material cost pressure higher or lower than expected
• Change in competitive intensity in instant noodle/beverage industry
• Industry trends in instant noodle/beverage stronger or weaker than expected
• Success or failure of new product launches

What to watch

• Whether H2 PET average price trend maintains in 6,000-7,000 RMB/ton range
• Whether tea category can continue to maintain growth above mid-high single digits
• Expansion speed of value retailer channels and increase in share contribution to company sales