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Article | Bullets of Fortune, Author | Walker, Editor | Mr. Egg
C’estbon, which has been “fighting” with Nongfu Spring, is also going to be listed in Hong Kong?
Recently, Bloomberg reported that China Resources Group is considering letting its packaged drinking water subsidiary, China Resources C’estbon Beverage (China) Co., Ltd. (hereinafter referred to as “C’estbon”), make an initial public offering in Hong Kong, and the fundraising scale may be as high as US$1 billion. Relevant information shows that China Resources Group has recently discussed the potential listing of Yibao, and has begun to negotiate with financial institutions and securities companies to inquire about the specific arrangement process.
According to Bloomberg’s report, if Yibao goes public, it will have to wait until the first half of next year, and the specific fundraising amount is only a preliminary intention, and there is no accurate news disclosure yet.
But what is intriguing is that some media asked the relevant person in charge of China Resources Group to verify the news of Yibao’s listing, and the answer was: no comment. This answer is very subtle, especially when the current bottled drinking water market is gradually showing a situation of “double strong side by side”, it is more noticeable.
Market research data shows that in my country’s bottled drinking water market, C’estbon has a market share of 21.3%, second only to Nongfu Spring, followed by Master Kong and Wahaha, which account for nearly 70% of the market share. However, the combined market share of Master Kong and Wahaha cannot equal the market share of the Yibao family.
In addition, the turnover of the top three bottled drinking water has also doubled. In 2019, Yibao announced that its revenue was 10.396 billion yuan, while the revenue of Nongfu Spring in the same period was 24.021 billion yuan, more than double that.
The key point is that C’estbon is a beverage company under China Resources Group, headquartered in Shenzhen High-tech Industrial Park. As the so-called “back against a big tree to enjoy the coolness”, China Resources C’estbon launched purified water in China in 1990. It is one of the early domestic enterprises specializing in the production of packaged drinking water. The main business is “C’estbon” brand series of packaged drinking water.
Once upon a time, C’estbon drinking water was also the “sweet pastry” of China Resources Group. In 2015, C’estbon’s turnover exceeded 10 billion yuan, with a five-year compound growth rate of about 40%, which has been far exceeding the industry growth rate. And since development, Yibao’s sales network has covered most provinces and cities in the country.
In the financial report of China Resources Group, C’estbon also made a statement. The core is that C’estbon will sell 10 million bottles of water in 2021, making it the earliest pure water producer in China.
In fact, the sudden news that “China Resources C’estbon is going to IPO in Hong Kong” is indeed a bit unexpected. After all, C’estbon is not short of money because it is backed by China Resources Group, one of China’s largest state-owned investment groups.
Just two months before the news was revealed, the former second shareholder of C’estbon, Japan Kirin Group, proposed to withdraw its shares, and the corresponding shares were transferred to a neutral third party. Judging from the information disclosed now, this part of the shares will eventually be transferred to investors with domestic background, which is most likely to be state-owned capital.
This can’t help but make people reverie and speculate about China Resources’ splitting of C’estbon for listing – C’estbon, is it a “burden” that hinders development, or is it a “pawn” for profit?
01 The second shareholder of FireWire exited
The predecessor of C’estbond was China Longhuan (Shekou) Co., Ltd., which was established in 1984. Its main products were juice products in Shenzhen, but the market was bleak. Later, it was acquired by Vanke and introduced the popular distilled water in Hong Kong as its main product, which once recovered its vitality.
However, in 1996, Vanke’s operation had problems and it planned to abandon its non-main business. Therefore, C’estbon was taken over by China Resources Group at a price of 10 million yuan. This was the beginning of the era of China Resources C’estbon.
As China’s largest import product agency and investor, China Resources has sufficient resources to enable the C’estbon brand to develop rapidly in its own hands. After taking over C’estbon at that time, China Resources not only upgraded its brand image, but also launched the development strategy of “Westward, Northern Expedition, and Eastward Expansion” to conquer the national market.
In 2007, the sales volume of Yibao in the market exceeded one million tons, successfully entering the first camp in the domestic drinking water industry. At the same time, C’estbon was included in the sequence of the first-level profit center of China Resources (Holdings) Co., Ltd. and changed its name to “China Resources C’estbon Food and Beverage (Shenzhen) Co., Ltd.”.
However, under the circumstances at the time, Nongfu Spring and Master Kong occupied the first and second places in the market respectively, and this ratio seemed unbreakable, and it was too difficult for China Resources to surpass them.
Therefore, in order to introduce business experience and to “borrow a boat to go to sea” to surpass friends and businessmen, China Resources Group signed a cooperation agreement with Japan’s Kirin on January 24, 2011. China Resources Group has injected the drinking water brand “C’estbon” and Kirin into the joint venture company with beverage enterprises in China.
Figure/Photograph network, based on VRF protocol
In 2012, China Resources C’estbon took the opportunity to surpass Coca-Cola and ranked third with a market share of 8.5%, while the top two were Master Kong (22.6%) and Nongfu Spring (21.5%). This is seen as one of the most successful cases of bringing in external resources, but that’s about it.
Although China Resources C’estbon has rapidly enriched its product line after establishing a joint venture with Japan’s Kirin, and launched a series of new products such as afternoon milk tea, fire coffee, magic power, etc., the income of these subdivided products is limited, which is not conducive to the growth rate of the group’s business. The impact is also relatively low, which makes China Resources C’estbon’s core product still bottled water.
Moreover, in the process of cooperation, the two sides have also been reported by foreign media that there have been several disputes over the market and products, and the two sides have other ideas about the cooperation of the branch.
Since 2017, Japan’s Kirin Co., Ltd. has begun to make strategic adjustments, and has gradually withdrawn its shareholding companies that have no decision-making power, so it has the intention to sell the shares of China Resources Kirin.
Finally, in February this year, Japan’s Kirin Co., Ltd. agreed to transfer 40% of the shares in the China Resources joint venture beverage company to a company called Plateau Consumer Ltd at a price of 115 billion yen (equivalent to US$910 million). s company.
Relevant announcements show that Plateau plans to transfer some of its shares to Chinese investors as part of a mixed-ownership plan. It is reported that some potential investors may be funds with state-owned background.
Of course, there is another consequence of this incident. Since the price of Kirin’s equity sale is public, the media can calculate the valuation of China Resources C’estbon at US$2.275 billion, equivalent to HK$17.8 billion.
And this valuation is only about 3.8% of the current market value of Nongfu Spring (as of April 26, the market value of Nongfu Spring is 463.4 billion Hong Kong dollars) . From the perspective of China Resources Group, it is already a relatively failed investment.
China Resources has been seeking to liquidate its assets and encourage its subsidiaries to raise funds on their own, people familiar with the matter said. From this point of view, China Resources C’estbon is promoting the listing of China Resources C’estbon, and China Resources Group has the idea of ”throwing the burden”.
02 Revenue and profit are not as good as Nongfu Spring
From an objective point of view, after China Resources took over C’estbon, it started with the drinking water business, and soon reaped a lot of returns.
According to the data of Guanyan Tianxia, the domestic bottled water industry has a relatively high concentration. As of 2021, Nongfu Spring has a market share of 26.5%, ranking first; followed by China Resources C’estbon, with a market share of 21.3%; followed by Master Kong, Wahaha, Baisuishan, and Binglu brands. The market share is 10.1%, 9.9%, 7.4%, 5.3% respectively.
From this point, we can see the position of China Resources C’estbon in the drinking water market, but unfortunately, the data of China Resources C’estbon is only for the advantages of bottled water. If it is put on other beverages, China Resources C’estbon will not be able to read it. .
Previously, the social responsibility report released by China Resources C’estbon showed that from 2014 to 2018, the company’s revenue climbed from 7.855 billion yuan to 10.435 billion yuan, showing a continuous increase trend. The data in 2019 fell for the first time in five years, with revenue of 10.396 billion yuan, a slight decrease of 0.3% year-on-year in 2018.
According to the prospectus of Nongfu Spring, from 2017 to 2019, the operating income of Nongfu Spring was 17.491 billion yuan, 20.475 billion yuan and 24.021 billion yuan respectively. In 2020, Nongfu Spring will land on the Hong Kong stock market and achieve operating income of 22.877 billion yuan; and according to the latest annual report, Nongfu Spring will achieve operating income of 29.696 billion yuan in 2021, a year-on-year increase of 29.8%.
According to estimates from China Resources Group’s financial report data, China Resources C’estbon’s income in 2021 is only about 13 billion yuan, and Nongfu Spring’s income is more than double that.
From the perspective of profit, China Resources C’estbon may be “insignificant” in front of Nongfu Spring.
In 2018-2019, China Resources C’estbon’s profits were 631 million yuan, 727 million yuan and 863 million yuan; in 2020, China Resources C’estbon did not announce specific revenue data, but announced a total profit of 1.037 billion yuan.
According to the prospectus of Nongfu Spring, the net profit attributable to shareholders from 2017 to 2019 was 3.379 billion yuan, 3.606 billion yuan and 4.95 billion yuan respectively, and a record-breaking 5.277 billion yuan in 2020.
According to this data, in the past few years, Nongfu Spring’s annual attributable net profit is 5 times, 5.7 times and 5.09 times of C’estbon’s total profit respectively.
In other words, from 2017 to the present, China Resources C’estbon’s revenue is basically equal to nearly 50% of Nongfu Spring’s, but its profit is only less than 25% of Nongfu Spring’s.
This result is related to C’estbon’s strategy of focusing too much on bottled water products, and it is also related to China Resources Group’s uncertainty about C’estbon’s development prospects.
03 China Resources’ “chicken ribs”?
After China Resources took over C’estbon, it used a tried-and-true “old trick” to make C’estbon grow rapidly.
Since C’estbon pure water, like Wahaha, both filter, distill and purify tap water, it is not so dependent on natural water sources, so C’estbon can quickly approach Nongfu Spring in terms of market share, relying on China Resources Group in the beer field. The “mushroom strategy” that has always worked.
The so-called “mushroom strategy” is to find local foundries for OEM processing in different regional markets, concentrating resources to increase market share within the scope of the factory, and then linking independent regional markets into one.
Like a blooming mushroom umbrella, covering the area that you can hold. Since the cost of bottled water itself is relatively low, the real cost of bottled water is mainly transportation and materials. C’estbon can quickly determine its own business scope with the “mushroom strategy”, and can further determine the product quality by using the advantages of plant density. Sales and cost advantages.
With this strategy, in December 2015, C’estbon surpassed Nongfu Spring with a slight advantage of 0.3% market share, and for the first time took the “top spot” in the bottled water industry, and was promoted to the industry leader in one fell swoop.
But in fact, China Resources has always wanted C’estbon to embark on the path of diversified development, but under the influence of this “mushroom strategy”, it cannot be carried out. The reason is also very simple. These local foundries have the ability to make distilled water, but if they want to change to other beverage products, they must upgrade their production lines and provide corresponding technical support and testing capabilities.
And these upgrades all mean additional investment. For local foundries, their own profits are low, and the cost of such investment is not worth the gain.
Therefore, in the development of diversified products, China Resources has to concentrate the production of products in a few core manufacturers, and use the nationwide transportation network to transport them to various places for sale, but in this way, there is no advantage in cost. At the same time, there has also been a big difference in the core channel capabilities.
Figure/Photograph network, based on VRF protocol
It is said that for some new products, China Resources can give 20% of the profit, but for the pure water that supports its own revenue, China Resources only gives the channel merchants 10% of the profit.
This makes many distributors “love and hate” China Resources — if they don’t sell China Resources’ pure water, they can’t afford to sell them; they can’t make money by selling China Resources’ pure water. If you want to make money to order other products of China Resources, there are already market-leading products in the local market, and there is no advantage in doing it yourself.
In addition, due to the low profit margin of China Resources C’estbon, C’estbon has always invested less in research and development, and all product development is half a beat slower than others.
After all kinds of factors, it is not difficult to understand now that China Resources Group has the idea of ”pushing China Resources C’estbon to the capital market”.
After all, C’estbon’s profits are only a small part of the entire group of China Resources. However, if it is pushed into the capital market, and the rapid development with the help of the capital market, it may bring benefits to China Resources Group far beyond the current model.
And this is also in the context of China Resources Land, which used to be the largest “cash cow” of China Resources Group, in the context of a financial crisis, highlighting some of China Resources Group’s thinking ahead.
In any case, China Resources C’estbon is also the “second child” in the drinking water market, and there is no shortage of materials for storytelling in the capital market. If new capital comes in and pushes it to speed up its development, it’s possible that even more novel stories will be told.
Therefore, if Yibao successfully IPOs in Hong Kong stocks, it may be a profitable strategy for China Resources Group.
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