1Q26 Performance Again Differentiated: Other Beverages and Gross Margin Beat Expectations, Sports Beverage Significantly Missed

Overview

This report is J.P. Morgan's commentary on Eastroc Beverage(A/H)'s 1Q26 earnings. The core judgment is differentiated earnings structure: other beverages and gross margin performance beat expectations, energy beverage growth recovered somewhat but slightly below street expectations, while sports beverages slowed significantly. Long-term, the company is still viewed as a disruptor in China's traditional beverage industry, benefiting from digitalization, channel management, and new product expansion, but in the short term needs to digest concerns regarding sports beverage second-growth curve deceleration, South China regional slowdown, and sustainability of profit margins.

Core views

Positive factors include strong sales of other beverage new products, 1Q26 gross margin beating expectations and reversing a previously three-quarter declining trend. Negative factors center on sports beverage growth of only 13%, far below the previous six consecutive quarters of high growth exceeding 50%, and also below market expectations of over 40%; energy beverage growth of 13% improved from 9% in 4Q25, but slightly below street expectations of 14%-15%; South China revenue grew only 3%, raising questions about regional momentum. The report expects the market will react negatively to sports beverage slowdown and South China stagnation.

Analysis framework

The report adopts an earnings breakdown and expectation gap framework, comparing revenue, category growth, regional growth, gross margin, core operating profit, net profit, and core EPS differences against YoY, JPM estimates, and market expectations respectively; valuation section uses SoTP method, assigning 24x P/E to energy beverage business and 13x P/E to other products, deriving a Dec-26 target price corresponding to ~21x consolidated 2027E P/E.

Methodology notes

• Valuation methodsSOTP

  Sum-of-the-Parts Valuation

  The report values energy beverages and other products separately: energy beverages given 24x P/E due to moat, economies of scale, and strong momentum; other products given 13x P/E due to fierce competition and lower innovation certainty.

• earnings_reviewExpectation gap analysis

  Expectation Gap Analysis

  The report compares 1Q26 revenue, gross margin, core profit, and category revenue growth against JPM estimates, street expectations, and lowered buyside expectations to judge direction of beat or miss.

• operating_analysisSegment and regional momentum review

  Segment and Regional Momentum Analysis

  The report focuses on breaking down energy beverage, sports beverage, other beverage, and regions such as East China, North China, South China growth rates to assess growth quality and potential forecast adjustment directions.

Asset mapping & comparison

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

• 605499.SS

  A-share Coverage Target

  Strengths

  Deep moat in energy beverage business, stronger economies of scale; other beverage new products growing fast; 1Q26 gross margin beat expectations.

  Weaknesses

  Sports beverage growth significantly slowed, South China regional momentum weak, profit margin outlook uncertain.

  Comparison

  A-share rated Neutral due to limited upside and valuation deemed relatively fair; current price Rmb208.33, approx 10.4% upside relative to target price Rmb230.00.

  Risks

  Competition and price wars, raw material cost inflation, new product failure, reputation risk.

• 9980.HK

  H-share Coverage Target

  Strengths

  Shares same company fundamentals as A-share, benefits from channel management, digital capability, and new product expansion; rated Overweight.

  Weaknesses

  Also faces sports beverage slowdown and unbalanced regional growth issues.

  Comparison

  H-share target price HK$267.00, current price HK$224.00, approx 19.2% upside, higher than A-share implied upside.

  Risks

  Competition and price wars, raw material cost inflation, new product failure, reputation risk, and Hong Kong market volatility.

Key data

• 1Q26 RevenueRmb5,888mn, +21% YoYBasically in line with lowered buyside expectations, approximately 1% higher than JPM estimates.
• Energy Beverage Revenue+13% YoYImproved from +9% in 4Q25, but slightly below market expectations of 14%-15%.
• Sports Beverage RevenueRmb645mn, +13% YoYSignificantly slower from +50% in 4Q25, below market expectations of over 40%.
• Other Beverage RevenueRmb826mn, +120% YoYRevenue share in 1Q26 was 14%, higher than 8% in 1Q25.
• 1Q26 Gross Margin46.9%Up 240bps YoY, 350bps higher than JPM estimates, primarily attributed to raw material cost savings.
• 1Q26 Core Operating ProfitRmb1,497mn, +29% YoYApproximately 10% higher than JPM estimates, core operating margin 25.4%.
• 1Q26 Core Net ProfitRmb1,200mn, +25% YoYApproximately 5% higher than JPM estimates, core net margin 20.4%.
• A-share Valuation and RatingNeutral; Target Price Rmb230.00; Current Price Rmb208.33Dec-26 target price implies ~21x consolidated 2027E P/E.
• H-share Valuation and RatingOverweight; Target Price HK$267.00; Current Price HK$224.00Also based on SoTP framework, target price implies ~21x consolidated 2027E P/E.
• A-share 12M Rolling P/EApprox 18-19xChart shows approaching -2SD 18x level, below -1SD 24x.

Impact & implications

Short-term impact is biased negative. Although gross margin and other beverage new product performance support profits and category diversification narrative, sports beverage as second-growth driver slowed significantly, prompting market to lower related revenue forecasts; South China region only 3% growth also increases questions about channel or regional demand slowdown. Net impact: revenue forecasts may be slightly revised downward; margin expectations depend on management explanation of gross margin expansion drivers and cost trends.

Risks

• Intensifying industry competition and price wars.
• Raw material cost inflation putting pressure on gross margins.
• New product launches failing or sales missing expectations.
• Sports beverage Water Boost Buishuila growth momentum continuing to slow.
• South China and other low-growth regions experiencing stagnated or further deteriorating revenue growth.
• Reputation risk.

What to watch

• Management conference call remarks on gross margin expansion drivers and full-year cost trends.
• Whether sports beverage subsequent quarter revenue growth can recover.
• Whether other beverage high growth can sustain and offset sports beverage slowdown.
• Repair path for South China and other low-growth regions mentioned in the report in 2026 and beyond years.
• Whether market lowers total revenue forecast, and whether profit forecast raised due to margin improvement.
• Whether A-share P/E stabilizes in 18x-24x range or continues to fall further.