China Beverages: Cost Inflation and Competitive Positioning

Goldman Sachs analyzes the China beverage sector, warning that rising PET costs and intense competition through QR-code promotions will squeeze margins. They prefer Nongfu Spring and Eastroc while downgrading Tingyi to Neutral.

Key Takeaways

• 1.The 'cost-down' narrative for the beverage sector has reached an inflection point, with higher and more enduring PET cost inflation expected due to geopolitical disruptions and rising oil prices.
• 2.Nongfu Spring is highlighted as the best positioned to absorb cost inflation due to its scale, product mix (higher-margin Oriental Leaf), and strong execution.
• 3.Competitive intensity remains extremely high, particularly with QR-code scan lottery promotions in the tea and energy drink segments.

Table of Contents

• Earnings and TP revision
• Stock Recommendations
• Valuation- What's Priced In
• Cost Sensitivity Analysis
• Investment Thesis - Tingyi
• Valuation comps
• Earnings Change Summary Table
• Price Target Risks and Methodology
• Disclosure Appendix

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