China’s Nongfu Spring shares fall after sharp slowdown in profit growth

Shares of China’s largest bottled water producer Nongfu Spring slumped on Wednesday, a day after the company reported a sharp slowdown in profit growth in the first half of the year.

Shares of Nongfu Spring listed in Hong Kong, which have declined over 41% so far this year, dropped 12% on Wednesday, according to LSEG data.

The company’s net income grew 8% year on year to 6.24 billion yuan ($876 million) in the first half of the year compared to 23.3% growth on the first-half of 2023.

Increased competition and an online backlash and “malicious defamation” affected sales, Nongfu said in its exchange filing.

“Due to the online public opinions in the first half of the year, the Group’s brand reputation and sales of packaged drinking water products has been adversely impacted,” it added.

Nationalist Chinese internet users have accused the firm of having pictures of Japanese religious buildings on its green tea packaging, leading to calls of boycotts. Some 7-Eleven stores reportedly stopped selling Nongfu products following the controversy. Nongfu had claimed that the architectural patterns were inspired by Chinese temples.

The company said it would “firmly take legal actions” against corporations and individuals who have “slandered” the brand.

The company said that domestic demand in general was picking up, while noting that the competition in the beverages space “is increasingly intense.”

Revenue from Nongfu’s packaged drinking water products, which make up 38.5% of its total revenue, plunged 18.3% to 8.53 billion yuan from 10.44 billion yuan in the same period last year.

Revenue from tea beverage products, which make up 38% of the company’s total revenue, rose nearly 60%.