Goldman Sachs maintains a Buy rating on Nongfu Spring; 1H26E growth driven by sugar-free tea and juice

Overview

This is a Goldman Sachs 1H26 earnings preview report on Nongfu Spring. The core view is that the company has further consolidated its leading position across multiple categories year-to-date in 2026, with 1H26E revenue and profit growth mainly driven by tea beverages, juice, and functional beverages, while packaged water, despite being affected by unfavorable weather and an industry slowdown, remains on a recovery track. Goldman Sachs lowered its 2026-2028E earnings forecasts due to slightly reduced projections for functional beverages and packaged water, as well as higher raw material cost assumptions, and cut the 12-month target price from HK$61.6 to HK$59.9, while maintaining a Buy rating.

Core views

Goldman Sachs expects Nongfu Spring's 1H26E revenue to reach RMB 29.3 billion and reported net profit to reach RMB 8.9 billion, representing year-on-year growth of 14% and 17% respectively, with net margin expanding slightly to 30.4%. By category, tea beverages are expected to grow 22% year-on-year, with Oriental Leaf growing by more than about 35%, making it the strongest driver; juice is expected to grow 18%, supported by 100% juice, NFC juice, and C100 SKUs; functional beverages are expected to grow 12%, with the new electrolyte water launched since March expected to contribute about RMB 350 million in sales; packaged water is expected to grow 6%, but is affected by unfavorable weather in 2Q26, slower industry growth, and consumers shifting toward healthier beverages. Entering 2H26, the company still aims for double-digit sales growth, but margin performance will depend on the balance among fluctuations in raw material prices such as PET and jasmine flowers, investment intensity, product mix upgrades, and operating efficiency.

Analysis framework

The report uses a combination of top-down and category-level forecasting: it first provides expectations for 1H26E revenue, net profit, and net margin, then breaks down the growth drivers across tea, packaged water, juice, functional beverages, and other businesses, and combines CT Brand offline channel data, company data, Goldman Sachs estimates, and valuation models to assess the target price. The valuation method uses a target 2027E P/E discounted back to mid-2027.

Methodology notes

• Valuation methodsTarget P/E Discounting Method

  30x target 2027E P/E discounted to mid-2027

  Goldman Sachs' 12-month target price of HK$59.9 is based on a target 2027E P/E of 30x and discounted to mid-2027 using an 8.5% cost of equity.

• Factor AnalysisGS Factor Profile

  Comparison of growth, financial returns, valuation multiples, and composite factor percentiles

  Goldman Sachs' factor profile compares individual stocks with the covered equity market and industry peers across growth, financial returns, valuation multiples, and composite indicators to provide investment context.

• Scenario and Trading FactorsM&A Rank

  M&A likelihood score

  Goldman Sachs uses an M&A rank of 1 to 3 to assess the probability that a covered company becomes an acquisition target; Rank 1 indicates high probability, Rank 2 medium probability, and Rank 3 low probability and is usually not included in the target price.

• Data ToolsQuantum

  Goldman Sachs proprietary financial database

  Quantum is Goldman Sachs' database for accessing companies' historical financials, forecasts, and ratios, supporting both in-depth single-company analysis and cross-company comparisons.

Asset mapping & comparison

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

• Nongfu Spring (9633.HK)

  Report subject and Buy-rated target

  Strengths

  Strong growth in tea, juice, and functional beverages, consolidated market position across multiple categories, and product mix upgrades plus operating leverage support margin improvement.

  Weaknesses

  Packaged water growth is affected by unfavorable weather, an industry slowdown, and consumers shifting to other healthy beverages; forecasts for functional beverages and packaged water have been lowered.

  Comparison

  The report notes that Nongfu Spring's packaged water is expected to grow 6% in 1H26E, while Goldman Sachs expects CR Beverage's bottled water business to decline by low single digits in 1H26E; the current valuation is below the historical average of around 30x.

  Risks

  Weaker-than-expected sales momentum in tea and packaged water, higher-than-expected cost inflation, and intensified competition in the beverage industry.

• Oriental Leaf

  Core driver of Nongfu Spring's tea beverage growth

  Strengths

  Strong demand for sugar-free tea, with promotions and new flavors such as new-season Longjing tea driving growth; 1H26 year-on-year growth is expected to exceed about 35%.

  Weaknesses

  The sustainability of growth depends on the popularity of the sugar-free tea category, channel performance, and acceptance of new products.

  Comparison

  CT Brand data show that in its tracked offline channels, the sugar-free tea category grew 16.1% year-on-year in 2Q26, significantly outperforming declines in other categories.

  Risks

  Intensifying category competition, declining promotional efficiency, or shifts in consumer preferences.

• Packaged drinking water business

  Nongfu Spring's traditional core business and a recovery area to watch

  Strengths

  Despite a low base, it is still expected to grow 6% year-on-year in 1H26, showing more stable performance relative to some peers' bottled water forecasts.

  Weaknesses

  Affected in 2Q26 by unfavorable weather, industry pressure, and consumers shifting toward healthy beverages, with operating momentum slowing since April.

  Comparison

  CT Brand data show that packaged water sales in its tracked offline channels declined 9% year-on-year in 2Q26.

  Risks

  Persistently unfavorable weather, weak industry demand, and competitive pricing pressure.

Key data

• 1H26E salesRMB 29.3 billionUp 14% year-on-year, mainly driven by tea, juice, and functional beverages.
• 1H26E reported net profitRMB 8.9 billionUp 17% year-on-year, with net margin expected at 30.4%, above 29.7% in 1H25.
• Tea beverages 1H26E growthabout 22% year-on-yearOriental Leaf is expected to grow by more than about 35% year-on-year, while Tea Pi is expected to grow by about 3%.
• Packaged water 1H26E growthabout 6% year-on-yearAffected by unfavorable weather and an industry slowdown in 2Q26, but still expected to achieve recovery growth.
• Juice 1H26E growthabout 18% year-on-yearDriven by the resilience of 100% juice, NFC juice, and C100 SKUs.
• Functional beverages 1H26E growthabout 12% year-on-yearThe new electrolyte water launched since March is expected to contribute about RMB 350 million in sales.
• 2026E sales and reported net profitRMB 59.4 billion / RMB 18.0 billionUp 13% and 14% year-on-year.
• Target priceHK$59.9Lowered from HK$61.6, with the Buy rating maintained.
• Valuation23x/20x 2026E/2027E P/EBelow the historical average level of around 30x.
• Cost assumption2H26E PET price RMB 7,500/tonUp about 30% year-on-year, one of the factors behind the earnings forecast cut.

Impact & implications

The report has a positive implication for Nongfu Spring's stock: although the target price is lowered due to changes in earnings forecasts and cost assumptions, Goldman Sachs still believes the company is one of the fastest-growing beverage companies in its coverage universe, and its current valuation is below the historical average. For investors, the key questions are whether Oriental Leaf and other healthy beverages can sustain high growth, whether packaged water can recover after weather-related disruptions, and whether raw material cost pressure will erode the margin improvement brought by product mix upgrades and operating efficiency.

Risks

• Sales momentum in tea beverages or packaged water may come in below expectations.
• Raw material cost inflation for PET, jasmine flowers, and others may exceed expectations.
• Intensified competition in the beverage industry may affect pricing, expense investment, and profit margins.
• A weak macro consumption environment may drag on category expansion and channel penetration.
• A slower-than-expected recovery in packaged water may lead to weaker-than-expected improvements in revenue mix and profit margins.

What to watch

• Whether actual 1H26 revenue, reported net profit, and net margin meet expectations of RMB 29.3 billion, RMB 8.9 billion, and 30.4%.
• Whether Oriental Leaf can sustain growth of more than about 35% and continue gaining share in 1H26 and 2H26.
• Whether the slowdown in packaged water since April continues, and whether sales recover after weather conditions improve.
• The trend in PET prices, jasmine flower prices, and other raw material costs in 2H26 and their impact on gross margin.
• Repeat purchases, channel expansion, and the ongoing contribution of the new electrolyte water after launch to the functional beverage business.
• Whether the company can continue achieving double-digit sales growth in a weak macro environment.