IPO Announcement | China Resources Drinks (02460) October 15-October 18 The stock offering is expected to be listed on October 23

According to the Zhitong Finance App, China Resources Drinks (02460) will raise shares from October 15 to October 18, 2024. The company plans to sell 348 million shares, with a public offering accounting for 11%, placement accounting for 89%, and an additional 15% over-allotment. The offer price will not be higher than HK$14.5 per share, and is expected to be no less than HK$13.5 per share, with 200 shares per lot. It is expected that the shares will be traded on the Stock Exchange on October 23, 2024 (Wednesday).

The company is a well-known enterprise in China's packaged drinking water industry and China's ready-to-drink soft drink industry. According to the Insight Consulting Report, the company began production in 1990 and is one of the first enterprises in China to specialize in the production of packaged drinking water. After 40 years of development, the company has grown to become the second-largest packaged drinking water company in China and the largest pure drinking water company in China (market shares of 18.4% and 32.7% in terms of retail sales in 2023, respectively). According to the Insight Consulting Report, the retail sales of the company's “Yibao” brand of pure drinking aquatic products reached RMB 39.5 billion in 2023, making it the number one brand in the Chinese pure drinking water market. With the company's “Yibao” brand as the center, and based on the success of drinking pure aquatic products, the company continues to enrich the company's packaged drinking water product matrix by enriching water types and expanding product specifications, covering various consumption scenarios including going out, at home, business, dining, and sports. For example, the company strategically lays out medium to large packaged drinking water. From 2021 to 2023, the company's revenue and sales of medium to large packaged drinking water products all had a compound annual growth rate of more than 10%, and the revenue share in the company's packaged drinking water category also increased steadily year by year.

With the company's established brand image in the packaged drinking water market, sales network and production capacity layout covering the whole country, the company has been actively participating in R&D and innovation, and has strategically expanded its business to several core categories in the Chinese ready-to-drink soft drink industry. These categories have been recognized by the market and have shown great potential for growth. According to the Insight Consulting Report, in 2023, in terms of retail sales, the company ranked fifth among ready-to-drink soft drink companies in China, with a market share of 4.7%; in addition, among the top five ready-to-drink soft drink companies in China (in terms of retail sales in 2023), the company's retail sales growth rate and net profit growth rate (based on the compound annual growth rate from 2021 to 2023) both ranked in the top two. The company has successfully created popular products under several well-known brands, making the company a leading position in several core categories of the Chinese ready-to-drink soft drink industry. According to the Insight Consulting Report, in terms of retail sales in 2023, the company's market share in core ready-to-drink soft drink categories such as tea drinks, juice drinks, and coffee drinks all ranked in the top ten in the Chinese market.

China Resources Group, one of the company's controlling shareholders, is a state-owned enterprise group headquartered in Hong Kong and ranked 72nd in the Fortune 500 ranking in 2024. Its core businesses include big consumption, integrated energy, urban construction and operation, big health, industrial finance, technology and emerging industries. Eight of China Resources Group's subsidiaries are listed on the Hong Kong Stock Exchange and nine are listed on the mainland China A-share market. It is worth mentioning that China Resources Beer, China Resources Electric Power, China Resources Land, and China Resources Vientiane Life are all included in Hong Kong's Hang Seng Index. As an enterprise under China Resources Group focusing on ready-to-drink soft drinks, the company occupies an important position in China Resources Group's large consumer sector layout. The company has a closely compatible corporate culture with China Resources Group and related business units under China Resources Group. Benefiting from mutual synergy in various fields such as sales channels, digitalization, raw material procurement, engineering management and ESG initiatives, the company can further improve operational efficiency, expand market share, and enhance brand influence. The company actively practices social responsibility and adheres to quality values. Since 2019, the company has been a partner of TEAMCHINA/China National Team. The company's “Yibao” brand was rated as “Official Drinking Water for the Chinese National Team”, providing safe and healthy packaged drinking water and beverage products for more than 70 Chinese national sports teams, and providing professional and healthy supplements. The company continues to provide consumers with healthy and high-quality products, and promote “Yibao” to become a trusted and widely known national brand.

The company, the co-sponsor and the overall coordinator have entered into a Cornerstone Investment Agreement with Cornerstone Investors, who have agreed (subject to certain conditions) to subscribe at the offer price or induce their designated entities to subscribe for a total amount of US$310 million or HK$2,407 million (down to the nearest complete trading unit of 200 shares per lot).

Assuming that the over-allotment rights are not exercised, after deducting the underwriting commission payable by the company in connection with the global offering and other estimated offering expenses and the hypothetical offer price of HK$14.00 per share (i.e. the median of HK$13.50 and HK$14.50 in the indicative offer price range), the company estimates that the net proceeds from the global offering will be approximately HK$4.726 billion. The company plans to use the following amount of proceeds from the global sale for the following purposes: within the next three to five years, approximately 30% of the net proceeds, or HK$1,418 billion, to strategically expand and optimize production capacity to improve overall supply chain efficiency. Over the next three to five years, approximately 23% of the net proceeds, or HK$1,087 billion, will be used to accelerate the expansion of sales channels and improve channel efficiency. Over the next two to three years, approximately 23% of the net proceeds, or HK$1,087 billion, will be used to carry out sales and marketing activities, enhance brand vitality, strengthen brand image, and enhance sales performance. Over the next three to five years, approximately 3% of the net proceeds, or HK$142 million, will be used to enhance the company's product development capabilities to continuously expand new product categories and SKUs. Over the next three to five years, approximately 3% of the net proceeds, or HK$142 million, will be used for digital upgrading, including enhancing the company's digital capabilities in sales, operations, production and logistics, thereby improving the company's operational efficiency. Approximately 8% of the net proceeds, or HK$378 million, were used for potential investment and merger and acquisition opportunities. Approximately 10% of the net proceeds, or HK$473 million, was used as working capital and for general corporate purposes.