Financial Services Association, Feb. 27 (Reporter Cheng Mengqi) - The “milk tea army” formed by Michelle Bingcheng, Gu Ming, Cha Baidao, and Aunt Shanghai flocked to the Hong Kong Stock Exchange at almost the same time, hoping that the Hong Kong stock would become the “second milk tea stock”. Cha Baidao also immediately updated its “life extension” when the prospectus was about to expire, showing its determination to go public.

Recently, frequent and similar actions by milk tea chains have left the market with many questions. Why are the “milk tea army” currently flocking to the Hong Kong Stock Exchange to seek listing together? Why is the determination to go public so firm? What do industry insiders think of these milk tea companies?

The answers to these questions are probably hidden in the competitive situation of the “milk tea industry”. In recent years, there have been more and more coffee and tea shops, and competition has become more intense. It's not hard to see that 9 yuan for coffee and milk tea has become the wool that young people have to hide; chain coffee and tea shops have opened up on the main streets of the township, but the one with the lowest prices is often doing very well; and rumors of some high-debt tea chain brands being “bought” have also surfaced from time to time.

Chabaidao's prospectus “Life Extension” update

Looking back at Chabaidao's preparation steps for listing, it can be seen that this company is anxious about going public.

In August 2023, Chabaidao submitted its first statement to the Hong Kong Stock Exchange; in December 2023, the official website of the China Securities Regulatory Commission issued a “full circulation” filing notice for Chabaidao's overseas listed shares and domestic unlisted shares; in February 2024, when the prospectus was about to expire, Chabaidao updated the disclosure data. This is also a necessary means to “renew the life” of the listing application, further showing Chabaidao's determination to impact the listing.

According to the updated prospectus, as of the last practical date, February 18, 2024, Chabaidao had 7,927 stores in China. In 2023, Chabaidao's revenue increased 34.8% year-on-year to 5.704 billion yuan, and its market share rose to 6.8%. In terms of store distribution, Chabaidao still accounts for the largest share of the new first-tier cities, at 26.9%; the share of fourth-tier cities and below has risen markedly, from 19.7% at the end of 2022 to 22.2%. Regarding the store city distribution strategy, Chabaidao mentioned in its prospectus, “While maintaining its position as a first-tier and new first-tier city to enhance brand awareness and keep up with changing market trends, it has penetrated and will continue to penetrate into low-tier cities with huge potential for consumption growth.”

At the same time, franchise stores are still the main brand business model of Chabaidao stores, accounting for more than 99%. Furthermore, in January 2024, the first overseas store of Chabaidao landed in Seoul, South Korea, and the first directly-managed coffee shop under the “Coffee Grey” brand has already opened, and new developments have taken place in the overseas and coffee circuit layout.

Who will be eliminated in the final sprint of the “milk tea series” 10,000 meter long run?

It is worth noting that since this year, Gu Ming, Michelle Ice City, and her aunt from Shanghai have submitted their forms to the Hong Kong Stock Exchange. Competition for the “New Style Tea Drink Second Stock” has become more intense. In the end, who can win the final victory, and who falls back down again, the results will soon be revealed.

Regarding the question of why the “milk tea team” flocked to the Hong Kong Stock Exchange at almost the same time, Liu Chang, assistant director of the Huafu Securities Research Institute and head of the Big Consumer Group, told the Financial Federation reporter that the core reason why milk tea companies are now intensively listed is that they are currently in the final window of competition, which is the last 20% of the 10,000 meter long run, and efforts must be stepped up. If they don't go public or don't open stores intensively, they may be out of the market later. Everyone can also see that milk tea chains are currently sinking strongly, and the price inflow is also serious. However, at this time, it is unlikely that upfront capital will continue to be invested, because upfront capital does not have many bullets left, and the required return is an attribute of capital. Prior investment in upfront capital will generate strong listing demands. This is because, on the one hand, listing can lock in part of the benefits, and on the other hand, it can have a place in the final battle through financing. Recently, it was also reported that Nai Xue is interested in acquiring some milk tea companies with problematic capital chains. The reason is that as a listed company, Nai Xue has more financing channels. However, other milk tea brands on the market want to obtain more financing channels through listing, and at the same time have more room for maneuver in the development of the industry.

So, how to analyze these four milk tea chain companies listed on the Hong Kong Stock Exchange? Liu Chang believes that these milk tea brands represent different categories, and initially they also represented different prices and flavors, but as the differences in milk tea products became less and less, the boundaries between milk tea brands became more blurred. Currently, if you make a simple comparison, the number of stores is an important indicator, because the number of stores represents the brand's effective customer base, purchasing stickiness, and supply chain system. If the number of stores represents the breadth of brands, then there is no doubt that Michelle Ice City has a core advantage; the others should be about the same. In terms of supply chain construction, Michelle Ice City is also at the front of the echelon; in addition, it is also necessary to consider the brand's customer unit price. If moving from a higher dimension to a lower dimension is an inevitable trend, it needs to be supported by a very strong supply chain.

Prospectus data from several milk tea brands also confirms Liu Chang's opinion. As of the end of the third quarter of 2023, Michelle Ice City, Gu Ming, and Shanghai Aunt each had 36,000, 9001, and 7,297 stores, almost all of which were franchise stores. In addition, Gu Ming's total revenue for the first three quarters of 2023 was 5.571 billion yuan, with a gross profit margin of 31%; Shanghai Aunt's income was 2.53 billion yuan; in the same period, Michelle Ice City's revenue for the first three quarters of last year was 15.393 billion yuan, with a gross profit margin of 29.7%.