Recently, ORG Packaging Co., Ltd. and Guangzhou Dongpeng Food & Beverage Co., Ltd. (hereinafter "Dongpeng") announced the signing of a strategic cooperation agreement to establish a strategic partnership. Leveraging ORG's production experience and advanced production technology in the functional beverage can sector, ORG will provide Dongpeng with high-quality packaging products and integrated services such as beverage filling. Both parties will conduct strategic cooperation based on the principles of equality, voluntariness, and friendly consultation.

The main contents of the agreement include that Dongpeng will designate ORG as its sole core supplier, purchasing metal can packaging and filling services needed for production from ORG. Dongpeng also commits to purchasing from ORG according to the quantities agreed upon in the agreement for the next five years of production needs. During the term of the strategic cooperation agreement, ORG will provide Dongpeng with "factory-within-factory" style on-site supply services as much as possible nationwide, and utilize its existing filling bases to provide supporting filling services.

Red Bull's Predicament

"Your energy, beyond your imagination!" This familiar slogan comes from China Red Bull, the domestic leader in functional beverages. Now, China Red Bull is facing the predicament of trademark authorization expiration, which not only fails to bring "energy" to the company itself but also threatens its beverage can supplier, ORG, the domestic metal packaging industry leader.

Since ORG's performance heavily depends on China Red Bull, any move by China Red Bull could cause fluctuations in ORG's profitability. On January 12, a representative from ORG's securities department told reporters that the cooperation between ORG and China Red Bull is currently normal, but without a clear judgment on the direction of events, ORG has no detailed contingency plan for the matter.

ORG May Be "Caught in the Crossfire"

Since its listing in 2012, ORG has been one of China's largest and most profitable metal packaging enterprises. However, the company has recently been repeatedly questioned by investors due to news about its beverage can purchaser, China Red Bull.

On January 12, 2017, ORG issued a clarification announcement titled "ORG Packaging Co., Ltd. Explanation Announcement Regarding Recent Media Reports on China Red Bull Beverages."

A representative from ORG's securities department also told reporters that China Red Bull is currently arranging production orders normally and fulfilling its strategic cooperation agreement with the company. "To date, the company has not received any notice from China Red Bull regarding changes to the business system for producing and selling Red Bull beverages, nor has it received any information that China Red Bull can officially release to the public," the staff member told reporters.

The reporter noted that in December last year, multiple articles were published questioning whether Red Bull Vitamin Beverage Co., Ltd. (China Red Bull), a subsidiary of Reignwood Group, had obtained trademark authorization.

According to China Red Bull's official website, China Red Bull (golden can), which has been sold in China for over 20 years, began expanding into the Chinese market in December 1995 after Reignwood Group obtained authorization from Thailand's TCP Group (Thai Red Bull). Currently, China Red Bull is in negotiations with Thai Red Bull and Austrian Red Bull for brand authorization. Whether China Red Bull can successfully renew its authorization not only affects its development in the domestic market but also directly relates to the performance of its beverage can supplier, ORG.

The reason ORG may be "caught in the crossfire" due to China Red Bull's trademark issues is precisely because of the close strategic cooperation between ORG and China Red Bull. According to announcements, the two parties signed a 10-year strategic agreement as early as February 10, 2012, stipulating that both parties are priority customers for each other, ensuring priority in the procurement and supply of beverage cans.

Excessive Dependence on Red Bull for Operating Performance

It should be noted that ORG not only has a close cooperative relationship with China Red Bull but also heavily relies on Red Bull for its profitability. ORG also admitted in its announcement that due to high customer concentration, events related to China Red Bull could indeed bring risks to the company.

In its "2016 Non-Public Issuance of Shares Plan (Third Revision)" released in November 2016, ORG clearly stated that if major customers significantly reduce demand for the company's products due to their own reasons or major adverse changes in the end-consumer market, the company's operating performance would be materially adversely affected. From the "Risk Description for Non-Public Issuance of Shares" in the plan, the reporter also saw that because ORG's Red Bull can sales have consistently accounted for over 90% of Red Bull's total beverage can procurement, the company maintains its position as the "main supplier" of Red Bull cans.

ORG's dependence on China Red Bull for operating performance can also be seen from its "Initial Public Offering Prospectus" released in 2012. According to the prospectus, the company's sales to Red Bull reached 838 million yuan, 1.242 billion yuan, and 1.517 billion yuan in 2009, 2010, and January-September 2011, respectively, accounting for 64.52%, 63.29%, and 72.22% of current operating revenue. This indicates that the profit from Red Bull accounts for a high proportion of the company's revenue and profit.

The reporter noted that ORG's 2016 third-quarter report showed that the company's operating revenue for the third quarter of 2016 was 2.18 billion yuan, a year-on-year increase of 19.8%; net profit exceeded 410 million yuan, a year-on-year increase of 26.33%. Analysts Zhou Wenbo and Lei Huihua from Essence Securities stated in a research report that ORG benefited from the recovery of Red Bull sales, with a clear rebound in performance.

It is worth noting that a staff member from ORG's securities department clearly told reporters, "The company is aware that the trademark authorization negotiations for China Red Bull are still in progress, but the specific progress is currently unclear." On one hand, the trademark negotiations for China Red Bull are relatively confidential; on the other hand, because the negotiations involve the overall market layout of China Red Bull, it is not convenient to disclose. However, ORG will pay close attention to the progress of the matter, communicate with investors in real time based on progress, and disclose information in a timely manner.

Will ORG Lose Red Bull?

Dongpeng Launches New Golden Can Packaging

As Red Bull's largest beverage can supplier, does ORG's signing with Dongpeng Beverage at this time mean that the big customer Red Bull is no longer secure? During recent market visits, reporters also found that small golden cans of Red Bull are out of stock in many places. Does this mean that Red Bull really cannot successfully renew its contract? We cannot know the truth, and it is only speculation at this point. It seems we will have to wait for the final settlement to unravel the mystery.

However, one thing we can see is that Dongpeng's pace is completely aimed at seizing the Red Bull market! The packaging is indeed very similar to Red Bull's golden can, and with Red Bull's beverage can supplier secured, could Dongpeng really be trying to become the second Red Bull?

This article is compiled and edited by New Distribution References: East Money Network, National Business Daily