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After two years and three months of listing, the share price of Dongpeng Beverage was like a runaway horse, rising from 46.27 yuan/share to more than 193 yuan/share, nearly quadrupling.

Behind this, the company's valuation has also climbed from 23 times profitable to 50 times the growth of highly tested performance. Before accepting this test, the company's directors, supervisors and senior executives and individual shareholders took the lead in opening the shareholding reduction mode.

This includes that in May this year, four employee stock holding platforms including Kunpeng Investment, nine directors, supervisors and senior executives including Cai Yunsheng and Li Dawen reduced the company's share capital by no more than 35.7415 million shares, accounting for about 8.94% of the total share capital. It also includes Junzheng Investment's reduction of 1% of the company's shares in the past six months.

There are many reasons for shareholders to reduce their holdings, but one basic premise is that they think the selling price is beneficial to themselves. From the perspective of Node Finance, Dongpeng Beverage, which is currently 50 times the P/E ratio, is indeed overestimated. Considering that the company has not yet gone out of regional operations, and its revenue is too dependent on single category, this risk seems more obvious.

In the past few years, Dongpeng Beverage has also been constantly struggling on the path of regional breakthrough and category diversification, but what is the effect? Has the company cultivated a second business curve? These issues are critical to the company's investors.

Track charm

"Two 90 year old men drink Coke as water" is the scene that many investors see at Berkshire Hathaway's shareholders' meeting every year.

These two old men are none other than Warren Buffett and Charlie Munger, who are six years older than him. On the one hand, they choose to drink Coke because of their likes and habits, on the other hand, they also reveal their unique investment preference - Evergreen consumer stocks.

Buffett got acquainted with Coca Cola very early. When he was 6 years old, he bought half a dozen Coca Cola at a cost of 25 cents and then sold them to his neighbors at a retail price of 5 cents per can. But it was not until 52 years later that the investment master chose to make a big profit in Coca Cola's stock.

From 1988 to 1994, Buffett successively bought Coca Cola shares worth about 1.3 billion dollars. After 11 years, the value of this position became 13.4 billion dollars, with an annual rate of 27%.

The excellent return of Coca Cola shocked the stock god, so that Buffett commented in his letter to shareholders that "when we find that there are both outstanding enterprises and outstanding managers, our holding time is permanent".

Today, Buffett has not broken his promise. According to the second quarter 13F report released by Berkshire Hathaway on August 16, Coca Cola accounted for the fourth largest position of Berkshire Hathaway with 6.92% of its positions, with a total value of more than 24 billion dollars.

In such a long shareholding cycle, the god of shares is still a steady profit.

The statistics of Industrial Securities also show that the cumulative increase of Coca Cola's share price during the 40 years from 1980 to 2020 was 224.4 times (including dividend adjustment), with an annual rate of up to 15%, significantly outperforming the S&P 500's mandatory consumption index.

In addition to the phenomenal success of Coca Cola, there are many successful cases of soft drink enterprises in the capital market. For example, since its listing in September 2020, Nongfu Spring, a domestic soft drink giant, has doubled its share price from its offering price; Since its listing in May 2021, Dongpeng Beverage, which focuses on energy drinks in China, has seen its share price quadruple compared with its issue price; The share price of Monster Drink (MNST), an American energy drink company, has more than doubled over the past decade

Node Finance believes that the soft drink industry is full of bull shares, On the one hand, it comes from the fact that the product itself has the consumption characteristics of high frequency of rigid demand, and the per capita consumption is still growing with the growth of residents' income. On the other hand, it is also related to high industry concentration.

Taking energy drinks as an example, the statistics of Euromonitor Consulting show that in 2022, the CR3 of China's energy drinks (the market share of the top three brands in total) will be 75%, the U.S. market will be 80.5%, and the Thai market will be 86.5%. In short, an expanding cake is occupied by a few oligarchs. This near monopoly state indicates a steady stream of profits and cash flow.

The charm of the above soft drinks on the track is also revealed in Dongpeng Beverage.

According to the financial report, in the five years from 2018 to 2022, the revenue of Dongpeng Beverage increased from 3.038 billion yuan to 8.505 billion yuan, and the net profit attributable to the parent company increased from 216 million yuan to 1.441 billion yuan. Their annual growth rates are 29.34% and 60.74% respectively.

The explosive performance made the capital market raise the valuation of Dongpeng Beverage from nearly 23 times to 50 times when it was listed, and the valuation increase contributed half of the company's share price increase in the same period.

But the stock price supported by high valuation is not reliable, and Coca Cola is a precedent. In 1998, when Coca Cola's P/E ratio exceeded 50 times and its share price reached 67 US dollars/share, its share price began to fall by nearly 12 times, and finally exceeded 70 US dollars/share in 2011. In addition to the technology stock bubble in 2000 and the financial crisis in 2008, the reason behind this is that the overvaluation is actually the culprit.

Looking at Dongpeng Beverage at the current price earnings ratio of 50 times, although the growth trend of energy drinks is good, the two major problems of regional concentration and single category of Dongpeng Beverage are still very challenging. In this regard, has Dongpeng Beverage found a reliable solution?

National problems

Energy drinks, just as its name implies, are drinks with certain energy and nutrients or other specific ingredients added to ordinary drinks to supplement energy for the body or accelerate its absorption of energy.

At present, mainstream energy drink brands such as Red Bull, Dongpeng Special Drink, Monster (Magic Claw), Lehu, and Physique Energy mainly contain specific ingredients such as "sugar, caffeine, taurine, vitamin B1, B6, and B12", but the content of specific ingredients in different brand products is slightly different.

Due to its clear "refreshing and anti fatigue" effect, the target consumers of energy drinks are also very precise. For a long time, its core consumers were blue collar workers such as "truck drivers". It is also easy to understand that Lin Qin, the founder of Dongpeng Beverage, "every time he drives past the expressway service area, he will look at the trash can and count how many bottles are his own".

However, with the change of social habits, the current consumption scene of energy drinks has penetrated into many scenes such as "staying up late and working overtime, exercising and fitness, studying for exams, and playing all night games", and its target population has also covered blue collar workers, white-collar migrant workers, and student groups.

The market scale of energy drinks continues to expand under such strong crowd breaking and scene extension. According to Euromonitor's statistics based on terminal sales, the market size of energy drinks in China will be 60.2 billion yuan in 2022, double that of 2015.

However, even though the growth rate of energy drinks is considerable, the market pattern is stable, leaving few opportunities for Dongpeng Beverage to occupy the share of its peers. Since 2015, Red Bull, which ranked first in the industry, has been deeply involved in the tug of war of commodity trademarks, but most of the lost shares of Huabin Red Bull have been taken away by Thailand Tiansi Red Bull.

This means that the performance growth of Dongpeng Beverage is more driven by the industry market.

A more realistic problem is that Dongpeng specialty drinks, the core category of Dongpeng drinks, have not yet gone beyond the local beverage attribute.

According to the financial report, from 2018 to 2022 and the first half of 2023, the revenue of Dongpeng Beverage in Guangdong accounted for 61.10%, 60.12%, 55.74%, 45.85%, 39.43% and 34.42% of the company's total revenue respectively. Although from the trend, the revenue share of the company in Guangdong is shrinking, However, its current volume is still more than the sum of Southwest China, Guangxi and North China (including North China).

As for the unbalanced regional distribution of Dongpeng Beverage, senior personages in the consumer industry told Node Finance that there are three main reasons.

First, Dongpeng Beverage was born in Shenzhen. Naturally, the development of Guangdong hinterland is more mature and refined than that of other regions. Second, it is related to the layout of competitors. For example, Red Bull can penetrate channels across the country with its strong brand power. There are also local brands such as Zhongwo Fitness Energy, which snipe at the northward movement of Dongpeng Special Drinks. Third, it is related to the capacity layout of Dongpeng Beverage. At present, the company includes seven completed production bases Zengcheng, South China, Dongguan, Anhui, Nanning, Chongqing, Haifeng, as well as the Zhejiang base and Changsha base under preparation are all located in the southern region, and the transportation radius to the northern sales market is too large.

Through actual shopping, Node Finance also found that consumers in the northwest region purchased Dongpeng Special Drinks online. The delivery place was Changsha, Hunan, and the arrival time took about two days, which greatly affected the consumer experience.

However, the problem of regional infiltration cannot be solved simply by building a production base in the local area. A FMCG dealer told Node Finance, The channel distribution of new brands is often a combination of tactics. In addition to putting the products on the shelf, the company also needs to do some targeted marketing activities in the local area, as well as send salesmen to sort out the hospitality relationship. These actions need to be repeated before the market can be nurtured, otherwise consumers will not recognize them at all.

These all require time and resources, and currently Dongpeng Beverage does not have the ability to fine operate all markets in a short time. In the investor relations activity in July, the company said that "in addition to the relatively perfect channel systems in East and Central China, the channel systems in Southwest, North China, North China and other regions are in the process of building and expanding".

It seems that the nationalization of Dongpeng Beverage still needs a long process.

So far, the company has focused on category development to hedge the risk of income concentration of energy drinks.

Who can stand up to the task?

The outstanding share price performance of Dongpeng Beverage in the secondary market comes from the success of energy drinks, but at present, the company seems to have only one energy drink - Dongpeng Special Beverage.

According to the financial report from 2018 to 2022 and the first half of 2023, the proportion of energy series products in the total revenue of the company is 94.99%, 95.11%, 93.88%, 94.47%, 96.08% and 94.04% respectively

The dependence on a single business and a single product is a phenomenon that the business and investment circles are avoiding. The reason is that the risk is too high. Once food safety accidents occur in the industry and category growth slows down, single business enterprises will quickly go downhill.

We see soft drink giants like Coca Cola and Nongfu Shanquan, who are representatives of diversified categories.

For example, Coca Cola has more than 200 brands including Coca Cola, Diet Coke, Sprite and Fanta, covering carbonated drinks, fruit juice, drinking water, coffee, sports drinks, tea and dairy products to meet different consumer needs. Similarly, there are dozens of brands under Nongfu Spring, Tea π, Oriental Leaves, Scream, Nongfu Orchard, covering many categories such as drinking water, tea drinks, functional drinks, fruit juice drinks, etc.

Node Finance believes that the layout of diversified categories can not only reduce the risk of soft drink enterprises, but also play a more important role in business synergy. For example, the products of Nongfu Spring are displayed in intelligent freezers in high-speed railway stations, airports, subways and other public places.

Dongpeng Beverage does not fail to see the limitations and risks of a single business. In its prospectus before listing, it was mentioned that in addition to energy drinks, the company also arranged non energy drinks and packaged drinking water, among which non energy drinks include citrus and lemon tea, orange peel tea, plant drinks and milk drinks.

However, the development of these beverage categories did not meet expectations.

Since 2021, Dongpeng Beverage has focused its category development on "zero sugar energy drinks and coffee drinks". The company has launched "zero sugar special drinks, Dongpeng celebrities and Dongpeng water supplement" in April 2021, September 2021 and January 2023.

According to the company's semi annual report and the latest investor exchange minutes, Dongpeng VIP and Dongpeng Water Replenishment have been identified as the core category of the company's second curve.

Among them, Dongpeng Coffee is mainly aimed at the ready to drink coffee market. At present, the retail price of a box of 330ml 24 bottles of Dongpeng Coffee on the e-commerce platform is 90 yuan, with a total of 3.75 yuan per bottle. The price is lower than that of Nestle ready to drink coffee, Master Kang Benasong and other products, which continues the competitive style of Dongpeng Special Drink.

However, in the opinion of the insiders, the packaging design of Dongpeng's famous coffee does not have much feature in color or shape, and the taste is also very ordinary. Obviously, there is no in-depth research on ready to drink coffee. Many consumers have also reported that the express package of Dongpeng is simple and easy to break, which is really challenging the bottom line of consumers.

In the opinion of a professional, In the process of opening up the second curve, Dongpeng Beverage has a clear gap with industry giants such as Nongfu Spring in terms of product naming, bottle design, advertising words polishing, etc.

Secondly, Dongpeng Water Replenishment, an electrolyte drink launched by the company this year, began to be sold nationwide in April, with a good response. A report released by Hongze Research in August showed that the terminal dynamic sales of "Water Replenishment" was significantly better than that of "Dongpeng Big Brand", and its daily unpacking volume was three times that of Dongpeng Big Brand, even many dealers could not get the goods. Hongze Research estimates that the sales scale of water replenishment by the end of July is about 200 million yuan, and it is possible to achieve the scale of 500 million yuan in 2023.

This is definitely a surprise for Dongpeng Beverage.

In fact, since the outbreak of the epidemic, consumers have increased their awareness of the efficacy of electrolyte drinks in replenishing water and health. In the first half of this year, the replenishing water of Japanese drinks, including Baokunli Water, the alien electrolyte under Yuanqi Forest, and Dongpeng Beverage has achieved considerable growth.

However, Node Finance believes that although Dongpeng has increased its growth beyond expectations, it is similar to the problem encountered by Dongpeng celebrities - how to make a breakthrough upward? Data shows that Pulsation, Scream, Gatorade and Alien Bokuli Water will firmly occupy the top five positions in the sports drink market in 2022. Will they be "stuck" after the water replenishing scale reaches a certain level?

Therefore, the challenge left for the second curve of Dongpeng Beverage is very arduous.

epilogue

The soft drink industry seems simple, but the threshold is low. Once there was a real estate tycoon who spent a huge amount of money to enter, and quickly collapsed.

Just when this real estate developer was making a great deal of cross-border water, a reporter asked what did Zhong Xuan of Nongfu Spring think? He calmly replied: "Our competitors are international brands, and never put Evergrande Ice Spring in the position of competitors. Evergrande is nothing special, but just another brand on the shelf."

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Node Finance Statement: The content of this article is for reference only. The information or opinions expressed in this article do not constitute any investment suggestions. Node Finance will not assume any responsibility for any action taken due to the use of this article.