Bottled water may seem like an unlikely candidate to make a big splash at IPO, but appearances can be deceiving. On Tuesday, September 8, Chinese bottled water and drinks producer, Nongfu Spring Co Ltd (HKG: 9633), stunned the Hong Kong stock market when it debuted with a $1 billion-plus IPO. Shares surged 85% at the opening bell, finishing up 54% on its first day of trading.
For any IPO that would be an incredible achievement, but for a commodity as modest as water, it’s astounding. And what’s more, it made its founder, Zhong Shanshan, China’s third richest man overnight.
China’s Third Richest Man
Shanshan has an 84% stake in Nongfu Spring and the incredible success of its IPO multiplied his personal wealth almost three-fold to $51 billion. This brings his paper-worth close in value to Alibaba’s Jack Ma ($57bn) and Tencent’s Pony Ma ($52bn).
Founded in 1996, Nongfu Spring was already a recognisable and popular water brand throughout the region. It sells a variety of bottled waters, teas, juices and energy drinks. Its retail sales exceeded $29.5 billion in 2019 alone, and its share of China’s water market is over 20%. That’s more than any other company operating in the sector.
IPO Day Sensation
It seems it’s not only stateside that retail investors are getting a taste for stock market trading. Pent up demand from retail investors going all-in on this bottled water IPO is what propelled its unexpected triumph. This year has seen a tremendous increase in demand from individual investors scrambling for a piece of the action. The excitement and wealth grabbing sensation of IPO day draws retail investors in, bringing the event itself into its own.
Case in point, the Nongfu Spring IPO was oversubscribed by 1,148 times through demand from retail investors. Meanwhile, demand from institutional investors was also an impressive 60 times over-subscribed, according to documents lodged with the Hong Kong stock exchange.
On its debut, Nongfu sold 388.2 million shares for $1.1 billion. Over 700,000 retail investors placed stock orders reaching HK$670.8bn (US$86.5bn). This obliterated Hong Kong’s previous retail investor IPO subscription record when the China Railway Construction Corporation was oversubscribed by 291 times at its flotation in 2008.
A Precious Commodity
Nongfu Spring’s success is reminiscent of another bottled water company that has done remarkably well; The Alkaline Water Company (NASDAQ:WTER | CSE:WTER | F:AWJA | SG:AWJA) which launched in North America. It is a premium water brand capitalizing on the health and wellness vision of athletes and health-conscious consumers in the US.
The Alkaline Water Co. has created a unique blend of purified water and pink Himalayan rock salt to produce a delicious, fresh and fully hydrating water product with superior qualities. Its advantage lies in its high PH level, which at 8.8 exceed that of ordinary tap water and other bottled waters. This gives it a myriad of additional health benefits such as boosting immunity, promoting strong bones and flushing out toxins, to name a few.
To create this innovative product, the company uses ionization and a state-of-the-art proprietary electrolysis process to infuse its water with trace minerals and electrolytes.
Its Alkaline88® branded water beverage products can already be found in over 72,000 retailers including Walmart, Lidl and Safeway and it recently added 123 independent Fareway stores to that list. Along with its trademarked Alkaline water, it also sells a range of CBD infused products, which are proving a popular wellness choice. More recently it has expanded into the hospitality sector, through Dot Foods, the largest food industry re-distributor in North America, which enjoyed sales exceeding $8.2 billion in 2019.
As much as the excitement of IPO day no doubt helped propel these bottled water companies to dizzy heights, the popularity of bottled water is unlikely to diminish soon. Although 70% of the earth’s surface is ocean water, less than 1% of the world’s water is fresh and drinkable. Water is the world’s most precious commodity and companies that are already positioned to bottle and distribute are sure to go from strength to strength in the years to come.
The Alkaline Water Co. is hugely ambitious and aiming for mass market growth throughout North America. Whether it succeeds in its mission or becomes a prime takeover target remains to be seen, but it shows no signs of slowing down in its expansion and remains an exciting company to watch.
As an investor, you should always be looking for an edge and water is proving to be an investment case worth exploring.