\u3000\u3000 Eastroc Beverage (Group) Co.Ltd(605499) (605499)
From deep cultivation in southern Guangdong to going to the whole country. Eastroc Beverage (Group) Co.Ltd(605499) is a time-honored beverage manufacturer in Shenzhen and one of the first batch of beverage enterprises in China. After completing the transformation from state-owned enterprises to private enterprises through employee fund-raising and shareholding in 2003, the company entered the fast lane of development. In 2009, it successfully entered and focused on the energy beverage track. After its success in the local market of Dongguan, it began to promote nationalization. As of 2021q3, The sales network covers 1.79 million terminal stores nationwide, with a revenue of nearly 5 billion yuan in 2020, ranking second in China’s energy beverage market.
Energy drinks: in terms of category, different from the mouthfeel soft drinks represented by fruit juice, energy drinks, as a kind of functional drinks, have both functionality and certain addiction. Therefore, on the premise that the functionality is recognized by consumers, the life cycle is often long, and it is easy to form large single products. Spatially, against the backdrop of the overall slowdown in the growth of soft drinks, energy drinks have sprung up. According to Euromonitor International, the compound annual growth rate of China’s energy drinks from 2010 to 2020 reached 21.9%, ranking first among all soft drink tracks. The retail scale in 2020 was 44.8 billion yuan and is expected to reach 76 billion yuan by 2026. Compared with overseas mature markets, we believe that China’s energy beverage market is still broad and is expected to double in the next five years. In terms of competition pattern, looking up, red bull, the leader of energy drinks, is subject to trademark disputes, and the market share continues to decline from 80% to 55%. Looking down, although the chaser Le Hu, system energy and war horse have their own characteristics, Dongpeng has better comprehensive strength and is expected to enjoy the double dividend of industry expansion and market share improvement.
Differentiation has achieved remarkable results, and nationalization has been promoted at all levels. In terms of products, the company has unique ingenuity, avoids the direct confrontation with red bull, and takes the lead in launching the 500ml specification, which makes up for the vacancy of high-capacity energy drinks in China. It has the first mover advantage and has a high cost performance compared with competitive products. Driven by the 500ml gold bottle, the penetration rate of the company’s products has increased rapidly. On the brand side, the company has fully launched the brand rejuvenation strategy since 2016. Through a series of marketing methods in line with the psychology of young people, the company has accurately talked to young groups, gained a high sense of identity among young people, and greatly improved brand awareness. In terms of channels, after the adjustment of the sales system in 2018, the company has preliminarily straightened out the ideas and mechanism of national market expansion through the introduction of talents and the empowerment of digital marketing technology. At the national level, the company has nearly 75% of its outlets to be developed and has great potential.
Plan ahead and expand production capacity in advance, and profitability is expected to continue to improve. By 2020, the production capacity of the company’s whole product line is about 1.8 million tons / year, of which the capacity utilization rate of large single product 500ml gold bottle is close to 90%, approaching the upper limit of production capacity. With the layout and expansion of production capacity with 1.4 billion listed funds, it is expected to add 1.1 million tons / year of production capacity after all of them are completed, laying a solid foundation for nationalization.
For the first time, give the company a “buy” rating. As a leading enterprise of energy drinks, on the one hand, the company is expected to continue to benefit from the dividends brought by the high prosperity of the energy beverage industry. On the other hand, under the background that red bull trademark disputes are difficult to land in the short term, the company is expected to strengthen the channel thrust by virtue of cost-effective products and innovative marketing means to achieve differentiated breakthrough, With the steady progress of nationalization and the best development opportunity, we expect the company’s EPS to be 2.98 yuan, 3.95 yuan and 4.99 yuan respectively from 2021 to 2023, covering and giving the company a “buy” rating for the first time.
Risk tips:
1. The dispute over red bull’s trademark was settled, and China Red Bull continued to have the right to use the trademark, resulting in intensified market competition. 2. The company’s national expansion was less than expected, and the terminal mobile sales slowed down
3. The change of people’s living habits leads to the consumption scene of energy drinks, the consumption frequency is lower than expected, and the growth rate of the industry slows down. 4. The fluctuation of raw material cost leads to the short-term pressure on the gross profit margin
