Nongfu Spring Co., Ltd. (HKEX: 09633) delivered robust first-half results, with its tea beverage segment showcasing impressive momentum even as its packaged water business saw its revenue contribution decline further. On August 25th, the company released its interim report, revealing total revenue of RMB 29.718 billion, a 16.0% year-on-year increase. Profit attributable to owners of the parent company reached approximately RMB 8.887 billion, up 16.6%, with basic earnings per share at RMB 0.790, a 16.7% increase.

In its financial report, Nongfu Spring noted that the competitive landscape of China's beverage industry is marked by leading giants consolidating their positions while new entrants disrupt the market, intensifying both vitality and competition. Concurrently, sub-categories are diverging at an accelerated pace, with health, functionality, and diversification trends becoming increasingly pronounced. Consumers are paying greater attention to ingredient transparency and clean labels, pushing beverage products toward cleaner formulas, fewer additives, and enhanced functionality. Growth in segments like sugar-free tea and functional drinks remains strong.

Looking at product category performance, tea beverages solidified their position as Nongfu Spring's top category, generating revenue of RMB 13.122 billion in the first half, accounting for 44.2% of total revenue, up significantly from RMB 10.089 billion a year earlier—a substantial 30.1% surge that served as the primary growth driver. The company's "Oriental Leaf" brand, initially not mainstream when launched in 2011, has gained traction as the consensus around reducing sugary drink consumption has grown. Sugar-free beverages have entered daily consumption scenarios, with unsweetened tea becoming one of the most widely accepted categories due to its closer-to-nature form. In its report, Nongfu Spring stated that its tea business continued to advance a multi-specification matrix strategy and formula health upgrades, actively responding to consumers' diverse and health-conscious drinking needs. The company also highlighted ongoing innovation and upgrades to its "Tea Pi" series, with all product lines achieving sugar reduction of over 25%.

Packaged water, the second-largest category, generated revenue of RMB 9.641 billion in the first half, a mere 2.1% year-on-year increase, marking a noticeable slowdown as its revenue share slipped from 36.9% to 32.4%. Functional beverages and juice drinks posted revenues of RMB 3.348 billion and RMB 2.922 billion, respectively, with year-on-year growth of 15.5% and 14.0%. The functional beverage share held steady at 11.3%, while the juice category's share dipped slightly. Other products, including sparkling water, coffee, plant-based beverages, and fresh fruit agricultural products, contributed RMB 684 million in revenue, up 8.7% year-on-year, representing 2.3% of total revenue.

During the reporting period, Nongfu Spring's gross margin improved to 60.9%, up 0.6 percentage points from 60.3% in the same period last year. This was primarily driven by changes in the product mix and lower procurement prices for raw materials such as fruit juice and sugar compared to the previous year, partially offset by higher PET raw material costs.

As beverage companies like Tingyi (Cayman Islands) Holding Corp. (HKEX: 00322), Uni-President China Holdings Ltd (HKEX: 00220), and Dongpeng Beverages Co., Ltd. (SH: 605499) have released their financial results, it is evident that the tea beverage sector is experiencing internal divergence in the first half. Sugar-free tea is growing rapidly, traditional sweetened tea is struggling, and packaged water is broadly entering a phase of low or even negative growth. The performance across listed companies is sharply differentiated.

For instance, Tingyi's beverage business includes tea, juice, and carbonated soft drinks. Among these, the tea category was the only segment to achieve year-on-year growth, with revenue jumping 9.1% to RMB 11.640 billion. Uni-President China's beverage segment, which accounts for over 60% of total revenue, saw beverage revenue of RMB 10.751 billion in the first half, a slight 0.3% decline year-on-year. This marks the company's first negative beverage growth in an interim report in nearly five years. Within its sub-categories, the milk tea segment grew against the trend, with its Ah-Sam milk tea brand capturing significant consumer mindshare. Both companies' packaged water businesses experienced varying degrees of year-on-year decline.

Dongpeng Beverages is built on energy drinks as its foundation, with electrolyte beverages as its second growth engine. Tea, coffee, and plant-based protein beverages still represent a relatively small portion of its revenue. However, the most eye-catching segment in the first half was its tea beverage business, which generated RMB 1.058 billion in revenue, a substantial 208.99% year-on-year increase. Its revenue share jumped from 3.19% in the same period last year to 8.52%. Dongpeng does not have a large-scale packaged water product; its core water-related offering is the electrolyte drink "Dongpeng Buka La", which generated RMB 1.672 billion in revenue during the first half, a year-on-year increase of 11.98%, though this growth rate has decelerated significantly compared to the previous two years.