Gu Ming: Subsidies fade, coffee picks up; the 'Costco of tea' stays solid!

On the evening of Aug 26 (Beijing time), Gu Ming (1364.HK) released its 2026 H1 results. Overall performance was solid: despite a sharp pullback in delivery subsidies, it held cup volume and set a new high in core OP margin. $GUMING(01364.HK)

Key takeaways:

1) Growth moderated QoQ off a high base but remained resilient. H1 revenue reached RMB 7.47bn (+32% YoY). Growth was almost entirely store-led, with per-store metrics roughly flat despite last year's elevated delivery-subsidy base, pointing to high-quality growth.

2) Tighter screening of new franchisees; opening pace slowed materially. Gu Ming opened 1,318 stores and closed 521 in H1, for net adds of 797, down 37% YoY. By franchisee mix, new franchisees fell 40% YoY while exits were roughly flat; back-solving implies the share of new stores opened by existing franchisees jumped from 14.8% to 39%. This aligns with management's rationale: prioritizing upgrades to Gen-6 stores and enforcing stricter site-selection for new openings.

3) Cup volume held firm despite subsidy fade. Average daily cups per store were 440, roughly flat YoY, while ASP per cup rose 3.1% to RMB 17.8. Incremental coffee and breakfast sales effectively offset the drag from lower delivery subsidies.

4) Operating leverage kicked in; profitability improved. GPM expanded 190bps to 33.4% as reduced discounts on raw-material sales to franchisees and supply-chain efficiencies lowered costs, in line with prior guidance. With opex ratios down across the board, core OP margin reached a record 27%.

5) Financial snapshot:

Dolphin Research view:

Overall, this print shows Gu Ming has successfully shifted growth engines—from 'delivery subsidies + land grab' to 'category expansion + densification'—without a stall at the store level. Over the past year, growth was driven largely by platform subsidies and 1–2k store additions every half. In H1, both engines slowed (subsidies faded; openings cut to < two-thirds of last year), yet revenue still grew 30%+, suggesting the second curve—coffee + breakfast—is working well.

Some in the market read the lowered store-opening guide as 'the growth story is over', triggering a sharp selloff, which we see as misguided. Context: among 112 chain tea-drink brands in H1, 62% saw store counts shrink or stall. In a shakeout, being able to choose to open fewer stores is a capability, as most brands want to open but cannot; Gu Ming's choice to slow near term, upgrade quality, and protect franchisee profitability is consistent with its long-standing playbook.

On valuation, assuming full-year NP of ~RMB 3.1bn (H2 roughly in line with H1), the stock trades at ~17x after the recent rebound. Against our est. 18%+ EPS CAGR over the next three years, this is not demanding. With the mid-to-long-term thesis intact, a base-case re-rate to 18x implies ~8–10% upside.

Detailed takeaways:

I. Overall performance: growth slowed QoQ but remained high quality

H1 revenue reached RMB 7.47bn (+32% YoY). Growth was almost entirely store-led, with per-store metrics roughly flat despite last year's elevated delivery-subsidy base, indicating healthy quality.

II. Store openings: net adds of 797; deliberate slowdown

Management cited three reasons for the slower pace: greater focus on store quality, prioritizing upgrades to Gen-6 stores, and tighter site-selection for new stores. This is consistent with the franchisee mix shift toward existing operators.

The only blemish was closures: we estimate the closure rate rose from 3.1% to 3.84%. We view this as normal cleanup during an industry shakeout, but it warrants another 1–2 quarters of monitoring.

By geography, lower-tier cities (Tier-2 and below) accounted for 82% of stores (81% last year), with township stores rising from 43% to 45%. Tier-1 cities had only 459 stores (3%), reflecting management's view that delivery mix and labor/rent are high while pricing is constrained, dampening franchisee margins.

III. 'Pick-and-shovel' biz. mix increased

By revenue breakdown, sales of goods and equipment were RMB 5.97bn (+32.8% YoY), lifting the mix by 50bps to 79.9%. This is compatible with higher GPM and is core to the model: cost-down outpacing givebacks, lowering franchisees' input costs while lifting the company's GPM, a win-win. The backbone is infrastructure: 24 warehouses by end-Jun with ~277k sqm of GFA and >82k cbm of cold storage; ~73% of stores lie within 150km of a warehouse, ~99% achieve cold-chain delivery every other day, and DC-to-store delivery costs are under 1% of GMV.

IV. Per-store cup volume held on a high base

GMV was RMB 19.75bn (+40.1% YoY) with 1.11bn cups sold (+35.9% YoY). Holding 440 cups per store per day on last year's subsidy-inflated base suggests some users acquired during the subsidy phase were retained. Management's comment is consistent: stability was supported by richer coffee offerings and expansion into breakfast, partially offset by lower delivery-platform subsidies.

Despite a lower delivery mix (reducing the delivery-fee component), ASP per cup still rose 3.1%. We attribute this mainly to product mix (coffee, breakfast bakery, larger sizes) and deliberate pricing on delivery—management previously noted delivery prices are set RMB 3–4 higher than dine-in.

V. Operating leverage release; profitability up

GPM expanded 190bps to 33.4% as reduced givebacks on raw-material sales to franchisees and supply-chain efficiency gains lowered costs, in line with guidance. With selling, admin, and other opex ratios all down, core OP margin hit a record 27%.

Longbridge Dolphin Research on 'Gu Ming' (history):

Deep Dives

Jul 4, 2025: 'Gu Ming: Slow Is Fast! A 'Costco' in Tea Drinks?'

Jul 8, 2025: 'Gu Ming: Offense and Defense — Can the 'Costco of Tea Drinks' Win Out?'

Commentary

Aug 27, 2025: 'Gu Ming: Delivery in One Hand, Coffee in the Other — Laughing Again?'

Risk disclosure and statement: Dolphin Research Disclaimer and General Disclosures