Tingyi and UPC Cut to Neutral on PET Cost Pressure; Nongfu Spring Remains Top China Beverage Pick

Overview

This report focuses on China consumer companies related to beverages and instant noodles, with the key variable being PET packaging cost pressure from rising oil prices. BofA's commodities team raised its 2026 Brent oil price base-case assumption to US$92.5/bbl, significantly above the pre-conflict US$60/bbl, and believes that even if the conflict ends in April, there could still be a 4.0mbd shortfall in 2Q and a 2.5mbd shortfall in 2H. The report concludes that as low-cost inventory is gradually depleted under FIFO accounting, PET cost pressure may feed into beverage companies' income statements by mid-2026.

Core views

The core view is that in a rising cost cycle, market leaders with stronger pricing power, higher margins, faster revenue growth, and better cost discipline are more resilient. Although Tingyi and UPC have relatively high dividend yields that provide some downside support, they are more sensitive to PET, have slower revenue growth, and thinner margins, with limited room for further price hikes, and are therefore downgraded to Neutral. Nongfu Spring, by contrast, benefits from recovery in packaged water, sustained momentum in tea drinks, and incremental contributions from new products and other categories. It is expected to maintain mid-teens revenue growth in 2026 and withstand cost volatility through stronger operating leverage and higher margins.

Analysis framework

The report combines top-down analysis of commodity cost pressure with bottom-up revisions to company earnings models. It first assesses the direction of cost inflation through trends in prices of oil, PET, sugar, corrugated paper, and palm oil; it then evaluates differences in product mix, PET cost as a share of COGS, gross margin, and expense buffers across companies; finally, it updates target prices and ratings through EPS revisions and blended P/E and DCF valuation.

Methodology notes

• Valuation methodsBlended P/E and DCF valuation

  Target prices are derived from a 50/50 blend of P/E valuation and DCF valuation.

  Target prices for Tingyi, Nongfu Spring, Eastroc, and others all use a blended P/E and DCF framework; for example, Tingyi's HK$13.5 target price is based on a P/E value of HK$13.3 and a DCF value of HK$13.8.

• Cost pass-throughPET cost pass-through after FIFO inventory depletion

  Before low-cost inventory is depleted, raw material price increases are not fully reflected immediately in the income statement.

  The report believes that under FIFO accounting, rising PET costs may begin to have a more visible impact on beverage companies' margins from mid-2026 after low-cost inventory is used up.

• Earnings sensitivityComparison of PET cost sensitivity

  The beverage business mix, packaging cost share, and margin level determine EPS sensitivity to PET prices.

  Tingyi and UPC were downgraded because their beverage exposure and margin structure are more vulnerable, while Nongfu Spring is viewed as one of the least PET-sensitive companies in the coverage universe due to higher margins and stronger revenue growth.

Asset mapping & comparison

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

• Tingyi

  Downgraded to Neutral, target price HK$13.5.

  Strengths

  Instant noodle sales are expected to remain solid, the balance sheet is strong, and a dividend yield above 6% provides some support.

  Weaknesses

  Beverage growth is slowing, PET cost sensitivity is relatively high, room for further price hikes is limited, and in 2026 the company may face a trade-off between revenue growth and profit protection.

  Comparison

  Compared with Nongfu Spring, margins and cost cushioning are weaker; compared with UPC, it still has some stability from the instant noodle business.

  Risks

  Rising raw material costs, beverage competition, slowing instant noodle demand, macroeconomic weakness, and food safety risks.

• Uni-president China

  Downgraded to Neutral, target price HK$8.8.

  Strengths

  A 2026E dividend yield of around 7% may provide downside protection for the share price.

  Weaknesses

  A high base in 1H26, intensifying competition, and OEM business may dilute margins; in addition, because instant noodle margins are thin, earnings are more dependent on the beverage business, making EPS more sensitive to PET costs.

  Comparison

  Among covered companies in the report, it is more sensitive to PET costs and product mix changes, with greater uncertainty around earnings recovery than Nongfu Spring.

  Risks

  Further loss of market share, greater-than-expected cost pressure, and rising advertising and promotion expenses due to competition.

• Nongfu Spring

  Buy maintained, top China beverage pick, target price HK$58.

  Strengths

  Group revenue is expected to grow at a mid-teens rate in 2026, with packaged water recovering to 2023 levels, tea drinks maintaining momentum, and other categories and new products contributing incremental growth; brand, channels, pricing power, and cost discipline are strong.

  Weaknesses

  The target price is still cut by 3% due to cost and valuation parameter adjustments, and EPS forecasts are slightly lowered.

  Comparison

  Compared with Tingyi and UPC, margins are higher, operating leverage is stronger, and PET cost sensitivity is lower; the report views it as a core China consumer holding.

  Risks

  Product quality and water source control, raw material volatility, changes in consumer preferences, intensifying industry competition, and channel management and key personnel risks.

• Eastroc

  Target price maintained, Eastroc-H HK$270, Eastroc-A RMB280.

  Strengths

  The report believes the target valuation is supported by 17% 2025-28 EPS CAGR and 2026-28E ROE above 40%.

  Weaknesses

  2027E NPAT is cut by 3%, and the company still faces cost and competition variables.

  Comparison

  Compared with Tingyi and UPC, the report did not cut the target price; compared with Nongfu Spring, the valuation basis relies more on high growth and high ROE.

  Risks

  Competition from new entrants, regional concentration, raw material cost inflation, and unsuccessful new product launches.

Key data

• Brent oil price assumption2026E US$92.5/bblAbove the pre-conflict assumption of US$60/bbl.
• PET cost as % of COGS13-30%The report says beverage companies have high PET exposure.
• PET price change2025 YoY -12%, April 2026 YoY +49%PET prices rebounded sharply after oil prices rose.
• Coverage EPS revisionAverage 2026/27E EPS cut by 7%/5%Overall earnings forecasts for covered China beverage companies were lowered.
• Coverage target price revisionAverage cut of about 5%Target prices for Tingyi, UPC, and Nongfu were all lowered.
• Tingyi rating and target priceDowngraded from Buy to Neutral; target price HK$13.52026/27E EPS cut by 7%/6%, with target price cut 3% from HK$13.9.
• UPC rating and target priceDowngraded from Buy to Neutral; target price HK$8.82026/27E EPS cut by 9%/9%, with target price cut 10% from HK$9.8.
• Nongfu Spring rating and target priceBuy maintained; target price HK$582026/27E EPS cut by 4%/2%, with target price cut 3% from HK$60.
• Eastroc target priceEastroc-H HK$270; Eastroc-A RMB2802027E NPAT cut by 3%, while target price remains unchanged.

Impact & implications

The investment implication is that the China beverage sector will shift from a revenue growth story to a differentiated trade based on cost resilience and margin cushioning capacity. Rising PET prices pressure companies with low margins, weak pricing power, or heavy reliance on promotional spending; at the same time, high dividend yields may provide valuation floors for Tingyi and UPC. By comparison, Nongfu Spring is better suited as a core sector holding thanks to stronger brand, channels, category expansion, and cost discipline.

Risks

• Oil and PET prices continue to rise, causing packaging cost pressure to exceed model assumptions.
• Tingyi and UPC may be unable to fully offset margin pressure through price hikes or expense cuts when costs rise.
• Competition in the beverage industry may intensify, increasing pressure on market share and advertising and promotion expenses.
• Instant noodle demand may slow, the macro economy may weaken, or the consumer recovery may fall short of expectations.
• Nongfu Spring faces risks related to product quality, water source control, changes in consumer preferences, and channel management.
• Food safety, key personnel, and unsuccessful new product promotion could affect brand strength and earnings.

What to watch

• Whether PET costs begin to show up clearly in gross margins after mid-2026 as low-cost inventory is depleted.
• Whether Brent oil prices stay near the report's US$92.5/bbl assumption or continue to rise.
• Whether Tingyi and UPC cut SG&A to protect margins, and whether that harms revenue growth.
• Whether Nongfu Spring's packaged water recovers to 2023 levels, and whether tea drinks and new products sustain growth momentum.
• Whether UPC's OEM business growth continues to dilute margins.
• Monthly price trends in China for PET, sugar, corrugated paper, and palm oil.