Dongpeng Beverage: Slowing Down of Energy Drinks, Can the Myth Hold?

$EASTROC BEVERAGE(605499.SH) On the evening of October 24th, Beijing time, Dongpeng Beverage (605499.SH) released its third-quarter 2025 performance. Overall, the company's growth quality is still decent, but the biggest issue lies in the continued slowdown of its core energy drink segment, leading to slightly underwhelming overall performance compared to market expectations. Key points are as follows:

1. Revenue slightly below market expectations: In 3Q25, Dongpeng Beverage achieved total revenue of 6.11 billion yuan, a year-on-year increase of 30.8%. From a trend perspective, the growth rate has slowed compared to the previous two quarters. Although the company's "second growth curve" electrolyte water continues to grow rapidly, the market's expectations for Dongpeng's energy drink business remain high, resulting in overall performance slightly below market expectations.

On the profit side, due to the pre-positioning of expenses in the second quarter and the release of the company's overall operating leverage, Dongpeng achieved a profit of 1.39 billion yuan in 3Q25, a year-on-year increase of 41.8%, still faster than the revenue growth, indicating relatively high overall performance quality.

2. Continued slowdown in energy drinks: By category, Dongpeng's energy drinks achieved revenue of 4.2 billion yuan in 3Q25, a year-on-year increase of 15%. From a trend perspective, the growth rate continued to slow compared to the second quarter, with single-quarter growth at its lowest level in nearly three years. The core issue remains the ceiling effect as Dolphin Research previously emphasized, with Dongpeng Special Drink's continued growth bringing the overall scale closer to its limit. Electrolyte drinks achieved revenue of 1.35 billion yuan, a year-on-year increase of 84%. From a trend perspective, after four consecutive quarters of over 200% high-speed growth, the growth rate has slowed slightly but still maintains relatively high growth. Currently, electrolyte water accounts for over 20%. Other beverages achieved revenue of 550 million yuan, a year-on-year increase of 94%, continuing to accelerate on a low base.

3. Base market has reached the ceiling. By region, although other areas outside Guangdong still maintained a 42% growth rate higher than the overall market, the biggest issue lies in Dongpeng's stronghold in Guangdong, which has been deeply cultivated for many years, achieving only a 2% year-on-year growth in the third quarter. From Dolphin Research's calculations of single-store revenue in Guangdong, there was no growth in the third quarter, indicating that Dongpeng's base market has essentially reached its growth ceiling.

4. Operating leverage release continues to enhance profitability. In terms of gross margin, due to the volume increase of low-margin electrolyte water and other beverages, the company's overall gross margin slightly declined by 0.4 percentage points to 45.2%. On the expense side, due to the pre-positioning of expenses in the second quarter and the company's continued refined operations, the overall expense rate has decreased, ultimately leading to a 2.1 percentage point increase in Dongpeng's core operating profit, reaching 27.4%.

5. Financial indicators overview

Dolphin Research's overall view:

From a performance perspective alone, Dongpeng's 30%+ revenue growth and 40%+ profit growth seem decent, but compared to the growth rates of the previous two quarters and the same period last year, it has clearly slowed down. In Dolphin Research's view, the signal clearly conveyed this quarter is that the slowdown in energy drink growth is essentially a foregone conclusion.

Dolphin Research has detailed calculations in "Dongpeng Beverage: After Special Drink, Where is the Next Billion-Dollar Secret?" estimating that the upper limit of Dongpeng Special Drink is roughly between 23-27 billion yuan. At the current pace, Dongpeng Special Drink's annual revenue is already close to 16 billion yuan. To achieve the remaining growth, Dongpeng clearly needs to enter hard mode, coupled with a common rule that any single category of soft drinks faces a slowdown in growth due to reaching a penetration bottleneck and the influx of substitutes after breaking through 20 billion yuan, which also applies to energy drinks.

Although the market-anticipated "second growth curve" electrolyte drinks continue to grow rapidly this quarter, the current scale of nearly 3 billion yuan compared to the 16 billion yuan of Special Drink is unlikely to fill the impact of the slowdown in Special Drink growth. Therefore, the core issue here is that Dongpeng's future growth rate is unlikely to support its current valuation.

Reviewing Dongpeng's past valuation, it can be seen that Dongpeng's valuation is almost entirely tied to performance growth, without enjoying valuation premiums. According to Dolphin Research's calculations, the current corresponding 2026 valuation is still 30x, which is clearly high compared to Dolphin Research's estimated 16% annual compound growth rate for 2026-2029. Therefore, Dolphin Research suggests caution at this stage.

Below is a detailed interpretation of the financial report:

I. Overall performance slightly below market expectations

In 3Q25, Dongpeng Beverage achieved total revenue of 6.11 billion yuan, a year-on-year increase of 30.8%. From a trend perspective, the growth rate has slowed compared to the previous two quarters. Although the company's "second growth curve" electrolyte water continues to grow rapidly, the market's expectations for Dongpeng's energy drink business remain high, resulting in overall performance slightly below market expectations.

II. Energy drink slowdown, electrolyte water takes over

By category breakdown, energy drinks achieved revenue of 4.2 billion yuan, a year-on-year increase of 15%. From a trend perspective, the growth rate continued to slow compared to the second quarter, with single-quarter growth at its lowest level in nearly three years. The core issue remains the ceiling effect as Dolphin Research previously emphasized, with Dongpeng Special Drink's continued growth bringing the overall scale closer to its limit.

At the current stage, the market is clearly more concerned about the growth of Dongpeng's "second growth curve" electrolyte water. In 3Q25, electrolyte drinks achieved revenue of 1.35 billion yuan, a year-on-year increase of 84%. From a trend perspective, after four consecutive quarters of over 200% high-speed growth, the growth rate has slowed slightly but still maintains relatively high growth.

Currently, electrolyte water accounts for over 20%, with the core being the company's pre-positioning of freezer placements and channel expansion in the first half of the year, achieving significant volume increase during the summer peak season. Based on this growth momentum, if calculated according to last year's operating pace, annual replenishment exceeding 3 billion yuan is almost certain, becoming Dongpeng's first 3 billion-level blockbuster product.

If broken down by specifications, although the company has not disclosed specific data, combined with research information, currently, large packaging (1L) accounts for over 50%, and the company has clearly stated that the future proportion of large packaging will reach 60%, indicating that large packaging is the core increment of Dongpeng electrolyte water. Dolphin Research believes that on one hand, compared to current competitors who mostly still have 500ml regular packaging, Dongpeng simultaneously launched 555ml regular packaging and 1L large packaging from the start, having a first-mover advantage and differentiation; on the other hand, more importantly, from the trend of the entire soft drink industry, various subcategories are basically migrating towards larger specifications, reflecting the essence that consumers are more focused on cost-effectiveness and sense of gain.

Additionally, to adapt to more drinking scenarios and broaden consumer groups, Dongpeng launched a 380ml portable packaging in February, targeting the lower-tier market, positioned for one-time drinking scenarios such as meetings, gatherings, and campuses (primary and secondary schools), with volume increase in the third quarter currently accounting for nearly 10% of the overall replenishment market.

From a competitive landscape perspective, the electrolyte water track is still accelerating its expansion. According to immediate offline monitoring data, the number of electrolyte water SKUs surged from 147 in 2024 to over 500 currently.

One category is traditional beverage companies (Wanglaoji, Jinmailang, Yinlu) attempting to enter the electrolyte water track to grab a share, but these products do not have much differentiation in terms of ingredients, mostly engaging in homogeneous competition based on price wars.

For example, Jinmailang launched "Quick Replenishment" this year, pricing the 1L large bottle at only 4 yuan, positioning it as the cheapest electrolyte water on the market, attempting to capture market share through even more extreme cost-effectiveness than Dongpeng. However, compared to Dongpeng, on one hand, Jinmailang's channels are only strong in its northern base markets (Shandong, Shanxi, Henan, Hebei), with far less coverage in other regions compared to Dongpeng. On the other hand, from a brand perspective, unlike Replenishment relying on Dongpeng Special Drink's strong brand endorsement, extending from energy drinks to the "Energy +" category, it is more of a brand image extension, while Jinmailang, representing traditional beverage companies entering electrolyte drinks, lacks strong linkage with its main category. Therefore, in Dolphin Research's view, it can only be considered a "channel brand," cannibalizing market share of unbranded products within its strong channels, unable to shake Replenishment's position.

Another category is emerging domestic brands represented by Guozishule, Qing Shang, and Koko Coconut, which generally launch products by adding other functional ingredients to the original electrolyte formula or combining with other categories to create differentiated flavors, enhancing health value. For example, Koko Coconut launched electrolyte coconut water by adding NFC coconut water, with single-bottle electrolytes ≥920mg (more than double the content of ordinary electrolyte water).

However, in Dolphin Research's view, these products are generally positioned as high-end, although they provide consumers with more differentiated choices, the high pricing also limits the audience of these brands, making it difficult to enter the mainstream player track.

Based on the above analysis, Dolphin Research believes that Dongpeng still has strong competitiveness in the electrolyte water track and is likely to maintain high-speed growth in the future, cannibalizing other brands' market share. According to Dolphin Research's calculations in "Dongpeng Beverage: After Special Drink, Where is the Next Billion-Dollar Secret?", the upper limit of Replenishment single product is at least 7.5-8 billion yuan, still having more than double the current space.

Other beverages achieved revenue of 550 million yuan, a year-on-year increase of 94%. Currently, besides Replenishment, the third growth trend is Dongpeng's launch of the sugary tea category "Fruit Tea" in February, using 1L large packaging, available in grapefruit, lemon, and peach flavors, currently being distributed through Dongpeng's national channels like Replenishment.

But the biggest issue is that, unlike electrolyte water, which is still one of the few high-growth blue ocean tracks in soft drinks with an undefined competitive landscape, sugary tea is a red ocean track that has long entered the stock stage, presenting a duopoly competition pattern dominated by Master Kong and Uni-President, with Master Kong's iced red tea single category accounting for nearly 40% of the market share.

As Master Kong and Uni-President are veteran players in the sugary tea track, having started channel refinement 20 years ago, the distribution rate of iced red tea and iced green tea in lower-tier markets has long exceeded 90%, possessing strong channel control. Therefore, Dongpeng's current stage of attempting to capture Master Kong and Uni-President's market share is understandably challenging.

Therefore, Dolphin Research believes that compared to Replenishment and Special Drink, Fruit Tea is unlikely to become Dongpeng's phenomenal blockbuster product, serving more as a category supplement.

III. Base market has reached the ceiling

1. From regional revenue, although other areas outside Guangdong still maintained a 42% growth rate higher than the overall market, the biggest issue lies in Dongpeng's stronghold in Guangdong, which has been deeply cultivated for many years, achieving only a 2% year-on-year growth in the third quarter. From Dolphin Research's calculations of single-store revenue in Guangdong, there was no growth in the third quarter, indicating that Dongpeng's base market has essentially reached its growth ceiling.

Other areas outside Guangdong achieved revenue of 3.73 billion yuan, a year-on-year increase of 42%, still presenting a high-speed growth stage higher than the overall market growth rate. Among them, the North China region achieved over 70% growth for three consecutive quarters, showing extremely impressive performance. If the timeline is pushed back three years, the North China region was still Dongpeng's weakest link, with revenue of only 600 million yuan, accounting for less than 7%.

In recent years, as the company gradually shifted its strategic focus northward, increasing investment in sales personnel and management personnel in the North China market, and accelerating channel development and depth in the North China region, on the supply side, the commissioning of the Tianjin production base has also greatly shortened Dongpeng's transportation radius, improving supply efficiency. Currently, the North China region accounts for 15% of Dongpeng's market, becoming the second-largest market outside Guangdong. It can be seen that Dongpeng's overall strategic determination and team execution are very strong.

Finally, from the number of distributors, except for the direct headquarters, the number of distributors in other regions is declining, indicating that Dongpeng has passed the stage of relying on distributors to expand its territory, currently focusing more on distributor quality. Combined with research information, the company is currently continuously optimizing distributors in various regions, and through "cleaning" distributors, Dongpeng's single-store operating quality will be higher in the future.

IV. "Second curve" volume increase, slight decline in gross margin

In terms of gross margin, due to the volume increase of low-margin electrolyte water and other beverages, the company's overall gross margin slightly declined by 0.4 percentage points to 45.2%. However, combined with research information, in late September, Dongpeng increased the ex-factory price of Replenishment from 55 to 57, while also making certain adjustments in expense support. Dolphin Research believes this reflects Dongpeng's improved channel bargaining power in the electrolyte water track at the current stage, breaking away from price wars, and future profitability is expected to continue to improve.

V. Operating leverage release, continued improvement in profitability

On the expense side, due to the pre-positioning of expenses in the second quarter and the company's continued refined operations, the overall expense rate has decreased, ultimately leading to a 2.1 percentage point increase in Dongpeng's core operating profit, reaching 27.4%.