Goldman Sachs downgrades Tingyi to Neutral, while remaining constructive on Nongfu Spring and Eastroc Beverage's relative advantages amid cost inflation

Overview

This report recalibrates PET procurement cost assumptions for China beverage coverage companies, arguing that cost inflation from 2026 to 2028 will be higher and last longer, while industry promotions and new-product competition have yet to ease. Goldman believes the sector narrative once driven by falling costs is nearing an inflection point; after share-price pullbacks, the market will shift from a cost trade to fundamental dispersion. The report continues to prefer Nongfu Spring and Eastroc Beverage, downgrades Tingyi to Neutral, and keeps Uni-President China and China Resources Beverage at Neutral.

Core views

The core views are: first, revenue growth across the sector has diverged, with Nongfu Spring and Eastroc Beverage posting double-digit growth in the first four months of 2026, Tingyi and Uni-President China delivering low-single-digit growth, and China Resources Beverage retail sell-through growing in low single digits; second, competition remains intense, with scan-and-win promotions and new product expansion pressuring earnings quality in categories such as unsweetened tea, sports drinks, tea beverages, and water; third, PET cost pressure will become more visible once locked-in inventory is exhausted, with Tingyi and Uni-President China facing higher pressure in 2026, while Eastroc benefits in the near term from a longer lock-in cycle but faces a reversal from the base effect in 2027; fourth, Nongfu Spring is viewed as having the strongest margin-defense capability thanks to scale, product mix upgrades, and execution; fifth, although Tingyi has dividend support, earnings drag and valuation rerating room are limited.

Analysis framework

The report uses PET spot prices, company lock-in cycles, Brent oil assumptions, category growth, promotion intensity, product mix, and valuation multiples as the main analytical variables to re-estimate 2026 to 2028 revenue, earnings, and target prices. On valuation, it mainly applies 2027E P/E multiples discounted back to mid-2027, while also referencing global beverage peers, historical periods of PET cost disruption, and each company's earnings visibility.

Methodology notes

• Cost sensitivityPET procurement cost re-estimation

  Measure PET cost impact by company lock-in periods and unhedged purchase prices

  The report assumes 2026 lock-in periods ranging from 4 to 11 months across companies, with unhedged procurement prices after lock-in at pre-tax Rmb8.5k/ton; for 2027, the average procurement price is assumed to be Rmb7.5k/ton to assess gross margin and earnings downside.

• Valuation methodsTarget P/E discounting

  Use target 2027E P/E discounted back to mid-2027 to calculate the 12-month target price

  Nongfu Spring uses 30x 2027E P/E, Eastroc Beverage 23x, Tingyi and Uni-President China 15x, and China Resources Beverage 16.5x, combined with forecast revisions, forward year roll, and FX updates.

• Relative comparisonCoverage company fundamental dispersion framework

  Compare revenue growth, margin resilience, promotion pressure, and shareholder returns

  The report divides companies into growth names and value-defensive names, seeing Nongfu Spring and Eastroc Beverage as having more growth and cost buffers, while Tingyi, Uni-President China, and China Resources Beverage rely more on dividends and valuation floor support.

• Disclosure methodGS Factor Profile

  Use growth, financial returns, valuation multiples, and composite factor comparisons to assess stock characteristics

  Goldman Sachs' factor framework uses analyst forecast data to standardize and rank sales, EBITDA, EPS, ROE, ROCE, CROCI, and P/E, P/B, dividend, and other metrics for investment backdrop comparisons.

Asset mapping & comparison

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

• Nongfu Spring (9633.HK)

  Core preferred name; reiterated Buy

  Strengths

  Strong performance in water and core brands such as Oriental Leaf, early sales of electrolyte water new products of roughly Rmb200-300mn, and scale, product mix upgrades, and the industry's high margin profile provide a cost buffer.

  Weaknesses

  Still faces rising PET costs and industry-wide promotional competition.

  Comparison

  Seen as the company best able to absorb 2026 to 2027 cost inflation and the one with the greatest share price upside among coverage.

  Risks

  Water and tea sales momentum falls short of expectations, cost inflation is higher than expected, and beverage industry competition intensifies.

• Eastroc Beverage (605499.SS)

  Preferred name; reiterated Buy

  Strengths

  The energy drink moat is relatively strong, and long lock-in means 2026 PET costs may still benefit year on year; the recent share-price pullback is seen as overly reflecting competition concerns.

  Weaknesses

  Binglangla and other beverage sales are progressing more slowly, and sports drinks face competition from Nongfu Spring's electrolyte water.

  Comparison

  Compared with other high-growth beverage stocks, the post-correction entry point is more attractive, but 2027 may see a PET cost pressure reversal due to a high base.

  Risks

  Energy drink industry growth is below expectations, competition worsens, new product ramp-up is slow, capacity is tight, raw material costs rise, regional expansion is slow, terminal penetration is slow, and there is reputational risk.

• Tingyi (0322.HK)

  Downgraded to Neutral from Buy

  Strengths

  It has a clear leadership position in instant noodles and beverages, a good track record on cost control and efficiency improvement, and dividend yields of about 7.1%/7.3% in 2026 to 2027 provide valuation support.

  Weaknesses

  Locked inventory is expected to run off by June 2026, and PET cost pressure will rise materially in the second half of 2026; sweet tea competition is fierce, and scan-and-win promotions dilute ASP; valuation is already fairly full.

  Comparison

  Compared with Nongfu Spring and Eastroc Beverage, Tingyi has weaker earnings visibility and limited room for further rerating.

  Risks

  Raw material costs are higher than expected, instant noodle and beverage competition intensifies, demand trends are weaker than expected, and new products underperform.

• Uni-President China (0220.HK)

  Maintained at Neutral

  Strengths

  2026 guidance is better than expected, and core SKUs, new products, and channels help support growth; high dividends and stable payouts provide a valuation floor.

  Weaknesses

  Once low-cost locked inventory is depleted, PET cost pressure may cause profit volatility; promotion discipline is relatively stronger, but it still participates in prize campaigns.

  Comparison

  Like Tingyi, it is a value/defensive name, with more obvious dividend support, but earnings beta and cost risk limit upside.

  Risks

  Raw material prices are higher than expected, instant noodle and beverage competition intensifies, and food quality issues emerge; upside exists if raw material prices are more favorable or demand recovery is stronger.

• China Resources Beverage (2460.HK)

  Maintained at Neutral

  Strengths

  Sales trends remain resilient despite a higher base, and cost control led to a 5% upward revision in 2026E pre-tax profit expectations.

  Weaknesses

  2027 to 2028 earnings estimates were cut by 2% to 9%, mainly due to PET cost drag and effective tax rate normalization.

  Comparison

  Compared with Nongfu Spring, China Resources Beverage is weaker in margin buffer, category expansion, and competitive defense; valuation depends more on its defensive characteristics.

  Risks

  Bottled water competition is stronger than expected, beverage business expansion is slower than expected, raw material cost benefits are lower than expected, channel management is uncertain, and there are reputational and food safety issues.

Key data

• PET spot pricesThe late-April 2026 high exceeded Rmb9.5k/ton, and early May was around Rmb9.1k/tonPET prices reached the highest level since 2022, driven by geopolitical disruptions and oil price expectations.
• Brent oil price assumptions2026E average around US$90/bbl, 2027E around US$85/bbl, 2028E around US$79/bblGoldman Sachs oil & gas analysts expect Brent to peak in 4Q26; the report says oil prices and PET prices have about an 80% correlation.
• Earnings estimate changes2026 second-half and 2027 earnings estimates for coverage companies cut by up to 11%, excluding Nongfu SpringMainly reflects higher and more persistent PET cost pressure.
• Promotion intensityScan-and-win prize rates are about 15% to 50%Promotions are concentrated in unsweetened tea and sports drinks, and are spreading to more beverage categories.
• Share price pullbackNongfu Spring/Eastroc Beverage have fallen 18% to 26% from the pre-February 27 highs; Tingyi/Uni-President China/China Resources Beverage are down 1% to 11%The report believes recent earnings risk has already been largely reflected in share prices.
• Nongfu Spring target priceHK$58.7, raised from HK$56.5Benefiting from upward earnings revisions and the forward roll of the discounting year, though the target P/E was cut from 32x to 30x.
• Eastroc Beverage target priceRmb184.6, lowered from Rmb201.54Target P/E was cut from 26x to 23x, reflecting valuation reference for a slowing growth phase.
• Tingyi target priceHK$12.6, lowered from HK$14.5Rating downgraded from Buy to Neutral; target 2027E P/E cut from 16x to 15x; the target price implies 4% upside versus the May 20 close.
• Uni-President China target priceHK$8.5, raised from HK$8.2Sales trends are slightly better, but earnings estimates are weighed down by PET cost assumptions; dividends are viewed as support.
• China Resources Beverage target priceHK$8.2, lowered from HK$8.52027 to 2028 earnings estimates were cut by 2% to 9% due to PET cost drag and tax-rate normalization.

Impact & implications

The investment implication is that the sector is no longer benefiting purely from falling costs in the near term, but has entered a phase of cost pressure, promotional competition, and differentiated execution across companies. Nongfu Spring, with more visible growth in water, tea, and functional beverages and a stronger margin buffer, is seen as the best allocation choice; Eastroc Beverage's pullback is viewed as having overly reflected competition concerns; Tingyi, Uni-President China, and China Resources Beverage have dividend or valuation-floor support, but earnings volatility risk is higher from the second half of 2026 through the first half of 2027.

Risks

• Further increases in key raw material prices such as PET, palm oil, sugar, and flour, causing gross margin and operating profit to miss expectations.
• Scan-and-win promotions, price promotions, and new product expansion keep industry competition elevated, pressuring ASP and raising selling expenses.
• After locked-in inventory is depleted, cost pressure may pass through more strongly than expected from the second half of 2026 to the first half of 2027.
• Weak consumer sentiment or slower growth in ready-to-drink tea, sports drinks, energy drinks, and other categories could undermine revenue and operating leverage.
• New products may fail to differentiate effectively, or may require higher promotional spending, resulting in weaker-than-expected revenue contribution and profit uplift.
• Company-specific risks such as food safety, reputation, channel management, and capacity utilization may affect valuation.

What to watch

• Whether PET spot prices retreat from above Rmb9k/ton, and volatility in upstream materials such as PTA/MEG.
• The point at which each company's low-cost locked inventory is exhausted, especially procurement costs for Tingyi, Uni-President China, China Resources Beverage, and Nongfu Spring after May to June 2026.
• The sustainability of Nongfu Spring's electrolyte water, Oriental Leaf, and water category growth, and whether it expands into energy drinks.
• Eastroc Beverage's share performance in sports drink competition, and whether the energy drink core moat remains intact.
• The severity of Tingyi's sweet tea competition, scan-and-win promotion intensity, and the decline in beverage operating profit in the second half of 2026.
• Whether Uni-President China and Tingyi maintain high dividend payouts and whether dividend yields can continue to support valuations.
• The impact of China Resources Beverage's water-business competition, beverage new-product expansion, and tax-rate normalization on 2027 to 2028 earnings.