Goldman Sachs raises its view on the persistence of cost inflation in China beverages, keeps Nongfu Spring and Eastroc Beverage as top picks, and downgrades Tingyi to Neutral.

Overview

This is an industry and stock-specific research report on China beverage coverage companies. Goldman Sachs re-evaluates 2026-2028E PET cost pressure, arguing that the 'cost declines' logic that supported industry earnings during 2022-2025 has reached an inflection point, and that cost inflation will be higher and more persistent over the next few years. At the same time, promotional competition in the industry has not yet rationalized; QR-code lotteries, new-product expansion, and channel investment continue to weigh on ASP and expense ratios. The report's core conclusion is that the short-term pullback has already reflected a lot of earnings risk, but investment opportunities will shift from a cost trade to company-specific fundamental divergence, with Nongfu Spring and Eastroc Beverage looking relatively more attractive.

Core views

Goldman Sachs remains constructive on Nongfu Spring, believing it is best positioned in terms of revenue visibility, margin resilience, scale advantages and new-product execution; it also remains positive on Eastroc Beverage, arguing that market concerns about sports-drink competition and slowing growth have already been overly reflected, while the energy-drink moat remains strong. In contrast, the report is more cautious on Tingyi, Uni-President China and China Resources Beverage on earnings, because once low-cost locked inventory is gradually consumed, high PET prices will create a more visible drag in 2H26 and 1H27. Tingyi was downgraded to Neutral, while Uni-President China and China Resources Beverage stayed Neutral.

Analysis framework

The report makes a cross-company comparison using raw-material prices, inventory lock-in cycles, procurement pacing, sales growth, promotional intensity, product mix, valuation multiples and shareholder returns. On the cost side, it estimates each company's effective PET procurement cost after the lock-in period ends, and incorporates Brent oil assumptions, PET spot prices and upstream PTA/MEG volatility into the view; on the revenue side, it compares core SKUs, new products and channel sell-through; on valuation, it uses 2027E P/E, return of capital to shareholders, dividend yield and recent share price pullbacks to judge whether risks have already been priced in.

Methodology notes

• Valuation methodsTarget P/E valuation

  Target P/E valuation

  The report applies 2027E target P/E multiples to different companies and discounts them back to mid-2027; for example, Nongfu Spring uses 30x 2027E P/E, Eastroc Beverage 23x 2027E P/E, Tingyi and Uni-President China 15x 2027E P/E, and China Resources Beverage 16.5x 2027E P/E.

• cost_analysisPET procurement cost sensitivity

  PET procurement cost sensitivity analysis

  The report estimates each company's effective PET procurement costs for 2026E and 2027E based on different lock-in periods, and assesses how cost tailwinds or headwinds affect gross margins and earnings forecasts.

• relative_positioningTopline and margin resilience comparison

  Comparison of revenue growth and margin resilience

  The report evaluates which companies are better able to withstand cost and competition pressure by comparing 4M26 sales performance, core SKUs, new-product contribution, promotional intensity, scale advantages and gross margin buffers.

• risk_frameworkGoldman Sachs Factor Profile

  Goldman Sachs factor profile

  The disclosed section indicates that Goldman Sachs Factor Profile evaluates stock characteristics from growth, financial returns, valuation multiples and composite indicators, and is used to compare individual stocks with the market and peers.

Asset mapping & comparison

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

• Nongfu Spring

  One of the preferred Buy names

  Strengths

  High revenue visibility, strong performance in water, Oriental Leaf and electrolyte water; scale advantages, product mix upgrades and industry-leading margins provide a cost buffer.

  Weaknesses

  Still affected by PET cost inflation and industry promotional competition.

  Comparison

  Compared with other beverage companies, Goldman Sachs believes Nongfu Spring is best able to absorb 2026-2027 cost pressure and has the greatest share-price upside.

  Risks

  Tea and water sales momentum coming in below expectations, cost inflation higher than expected, and more intense beverage industry competition.

• Eastroc Beverage

  One of the Buy names

  Strengths

  Strong energy-drink moat, more attractive risk-reward after the valuation pullback, and shareholder returns also provide support.

  Weaknesses

  Sports drinks face competition from Nongfu Spring's new electrolyte water, and the sell-in pace of some new products has slowed.

  Comparison

  The report believes market concerns about Eastroc's competition and slowing growth have already been overly reflected, but its 2027E may still face about a 20% YoY PET cost drag because of a high lock-in base.

  Risks

  Energy-drink industry growth below expectations, a worsening competitive landscape, slower new-product scale-up, insufficient capacity, rising raw-material costs, slower regional expansion, slower terminal penetration and reputational risk.

• Tingyi

  Downgraded from Buy to Neutral

  Strengths

  Instant-noodle business and dividend yield provide valuation support, and it has a good track record on cost control and efficiency improvement.

  Weaknesses

  Once the low-cost locked inventory is consumed around June 2026, beverage profitability will be more exposed to high spot costs; sweetened tea competition is intense and there is a lack of new growth engines.

  Comparison

  Compared with Nongfu Spring and Eastroc, Tingyi has weaker revenue quality and margin resilience; current valuation is seen as broadly fair.

  Risks

  Raw-material costs higher than expected, more intense instant-noodle or beverage competition, weak consumer demand, and new products underperforming.

• Uni-President China

  Maintained at Neutral

  Strengths

  High and stable dividend yield, some sales trends are more resilient than expected, and there is a chance of recovery from a low base in 2H26.

  Weaknesses

  Once low-cost inventory is consumed, profit volatility rises, and PET cost pressure may weigh on 2026-2028E earnings.

  Comparison

  Compared with Nongfu Spring, UPC lacks comparable scale and margin buffer; compared with Tingyi, its valuation framework is also based on 15x 2027E P/E.

  Risks

  Raw-material cost pressure, more intense competition in convenience foods or beverages, and food quality issues; upside risks include more favorable raw-material prices and better new-product performance.

• China Resources Beverage

  Maintained at Neutral

  Strengths

  Short-term sales trends are relatively resilient, 2026E pretax profit was raised, and cost control may leave gross margins better than feared.

  Weaknesses

  2027-2028E earnings forecasts were cut because of PET cost drag and tax-rate normalization, and the target price was lowered.

  Comparison

  Compared with Nongfu Spring, China Resources Beverage has weaker margin buffers and less category growth elasticity; valuation references peers Tingyi and Uni-President China.

  Risks

  Bottled-water competition stronger than expected, beverage business growth slower than expected, raw-material price benefits below expectations, uncertainty in channel management, and reputational or food-safety issues.

Key data

• PET spot priceRose to above Rmb9.5k/ton in late April 2026, and was around Rmb9.1k/ton in early MayThe report says PET prices reached their highest level since 2022, becoming the main source of industry cost pressure.
• Oil assumptionsBrent averages about US$90/bbl in 2026E and about US$85/79/bbl in 2027E/2028EGoldman Sachs oil and gas analysts expect Brent to peak in 4Q26, and PET is about 80% correlated with oil.
• Industry share price pullbackHigh-growth names Nongfu Spring/Eastroc Beverage fell 18%-26% from their pre-27 Feb 2026 highs; value/defensive names Tingyi/Uni-President/China Resources Beverage fell 1%-11%The report believes some short-term earnings risk has already been reflected.
• 2026E PET cost pressureChina Resources Beverage/Nongfu Spring expected to face high-single-digit to low-double-digit YoY pressure; Tingyi/Uni-President above 20%/30%; Eastroc Beverage may still see roughly -7% YoY cost benefit for the full yearThe difference mainly comes from different lock-in periods.
• Earnings forecast revisionsExcluding Nongfu Spring, the covered companies' 2H26 and 2027E earnings forecasts were cut by as much as about 11%Mainly reflects higher PET cost assumptions and ongoing competition.
• Nongfu Spring target priceHK$58.7, raised from HK$56.5, Buy maintainedSupported by stronger sales momentum, cost savings, product mix upgrades and target-year roll-forward.
• Eastroc Beverage target priceRmb184.6, cut from Rmb201.54, Buy maintainedTarget P/E was reduced from 26x to 23x, but the report believes the pullback has over-reflected competition concerns.
• Tingyi target priceHK$12.6, cut from HK$14.5, downgraded from Buy to NeutralImplied upside is about 4%; the report believes valuation is broadly fair.
• Shareholder returnsUni-President and Tingyi have 2026-2027E dividend yields of about 7%-8%; Eastroc Beverage's buyback implies about 1%-2% return, and its dividend yield is about 3%Shareholder returns are viewed as valuation support, but not enough to fully offset earnings pressure.

Impact & implications

The report's investment implication is that the China beverage sector is no longer a simple cost-down trade. High PET prices, promotional competition and new-product investment will compress margins, but share prices have already adjusted in advance, and the market is more likely to distinguish each company's revenue quality, category mix, cost buffer and execution capability. Nongfu Spring, with growth in water, tea, functional beverages and electrolyte water, plus a high gross-margin buffer, is seen as the best allocation; Eastroc Beverage still looks attractive because of its energy-drink moat and post-pullback valuation; Tingyi, Uni-President China and China Resources Beverage are more defensive or dividend-supported, with earnings elasticity dragged by cost and competition.

Risks

• Further rises in key raw-material prices such as PET, palm oil, sugar and flour could compress gross margins.
• Promotional competition in unsweetened tea, sports drinks, sweetened tea and bottled water may persist or intensify, diluting ASP and raising expenses.
• After low-cost locked inventory is depleted, earnings in 2H26 and 1H27 may face a more visible hit.
• If new products cannot differentiate or require more promotional support, revenue contribution and margins could be dragged down.
• Weak consumer sentiment, slowing channel momentum or the inability of RTD tea growth to continue would affect revenue and operating leverage.
• Food-safety issues, reputational risks, channel management and capacity-utilization problems could affect individual company performance.

What to watch

• Whether PET spot prices stay above Rmb9k/ton and the trend in Brent oil prices.
• The timing of each company's lock-in inventory depletion, especially changes in procurement costs for UPC, Tingyi, China Resources Beverage and Nongfu Spring after May-June 2026.
• The categories covered by QR-code lottery promotions, winning rates and whether any signs of rationalization emerge.
• The sustainability of Nongfu Spring's electrolyte water, Oriental Leaf, water products and other new products.
• Eastroc Beverage's energy-drink moat, sports-drink competitive pressure and new-product scale-up speed.
• The decline in Tingyi beverage OP in 2H26, and whether the instant-noodle business can offset beverage pressure.
• Whether Uni-President and Tingyi maintain stable dividends, and whether dividend yield continues to support valuations.
• Whether a real cost tailwind appears in 2H27.