Hong Kong Stock Market Review: Falling back to IPO price

China Resources Beverage and Horizon Robotics, two large new stocks listed so far have not performed well, with the latter experiencing a sell-off on the first day, erasing nearly 30% of its gains, and has now fallen back to the IPO price.

China Resources Beverage's net profit increased by 25% in the first 4 months of this year. If it can maintain an average profit growth of 25% over the next two years, its PE ratio next year will be around 15 times, while Nongfu Spring's will be around 22 times. In terms of gross profit margin and net profit margin, China Resources Beverage was 47% and 11% respectively in the first 4 months, while Nongfu Spring was 58% and 28% in the first half of the year.

If China Resources Beverage can gradually improve its profitability to approach that of Nongfu Spring, its valuation naturally has room to increase.

The difference in profitability is partly due to the different product mix. China Resources Beverage mainly sells water, while tea beverages have been the main driver of profit growth for Nongfu Spring recently, with reported operating profit margins 10 percentage points higher than bottled water. Furthermore, the industry's economies of scale are evident, with China Resources Beverage's sales expenses accounting for 30.7%, compared to 22.4% for Nongfu Spring.

This means that as long as China Resources Beverage can slowly increase its scale and manage costs better, there is great elasticity in profit release, continuing the strong profit growth performance in the first 4 months of this year.

However, Nongfu Spring only launched its green bottle in Q2, and the impact of price wars has not yet appeared in the financial reports. China Resources Beverage faces significant pressure in both sales volume and sales expenses. Optimistically, Nongfu's profit margin is already high and difficult to further improve, while China Resources Beverage has more potential for improvement/expansion in both profit margin and beverage products, with greater room for growth.

As for Horizon Robotics, aside from the fundamentals, what is worth noting is Baillie Gifford's investment.

Baillie Gifford had previously invested in the C round through its investment trust, with a cost per share of $0.47, holding approximately 0.8% after listing. However, the company also increased its stake as a cornerstone investor by adding 500 million shares, approximately 3.9%. Although the amount of over 20 billion is not much compared to the fund size, it still reflects foreign interest in Chinese assets.

In addition, Vitasoy has rebounded by over 70% recently, driven by continued buying from Singaporean beverage company Yang Hee Keng, who now holds over 9%. Despite Vitasoy's fundamentals not showing much improvement in recent years, Japanese shareholder Mitsubishi UFJ Financial Group has been continuously reducing its holdings, from 18% at the end of last year to around 7.8% currently. With Chairman Lo Yau-lai holding only about 16% of the shares, it seems that a major battle is inevitable.

Of course, it would be best to cooperate with each other, as Vitasoy can leverage Yang Hee Keng's distribution channels in the Southeast Asian market