CHABAIDAO's Hong Kong IPO may follow NAYUKI's footsteps.
The milk tea industry is becoming increasingly crowded. Nayuki has already gone public, Chabaidao is in the process of IPO, while Mixue Bingcheng, Chayan Yuese, Heytea, Bawang Bieji, Guming, and Yidiandian are all waiting in line for their IPOs, eyeing the market eagerly.
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I. IPO Information
II. Company Overview
Chabaidao was founded in 2008 in Chengdu, Sichuan, focusing on exploring creative combinations of natural ingredients and Chinese-style tea drinks. It continuously develops a diverse range of tea products, including classic, seasonal, and regional tea beverages.
As of April 5, 2024, Chabaidao has 8,016 stores across China, achieving full coverage in all provinces and cities of mainland China.
In terms of retail sales in 2023, Chabaidao ranked third in China's new-style tea shop market, with a market share of 6.8%. Its total retail sales in 2023 reached RMB 16.9 billion.
Chabaidao primarily operates under a franchise model. By the end of 2023, franchise store revenue reached RMB 5.659 billion, accounting for 99.2% of total revenue, while directly operated stores contributed RMB 25.84 million, or 0.5%.
Financial data shows that from 2021 to 2023, Chabaidao's operating revenues were RMB 3.644 billion, RMB 4.232 billion, and RMB 5.704 billion, respectively, with net profits of RMB 779 million, RMB 965 million, and RMB 1.151 billion during the same periods.
Chabaidao's revenue mainly comes from selling goods and equipment to franchise stores, accounting for about 95% of total revenue in the past three fiscal years, followed by franchise fees at 4%.
Chabaidao's real profit driver is raw material supply. Franchisees can only purchase ingredients, packaging materials, equipment, and operational supplies from Chabaidao. In other words, Chabaidao primarily treats franchisees as end sales channels while acting as a raw material supplier.
Chabaidao is more like a supply chain company disguised as a milk tea brand, also serving as a brand exporter.
III. Comprehensive Review
As the "second new tea drink stock" on the Hong Kong stock market, it’s natural to compare Chabaidao with the first tea drink stock, Nayuki. When Nayuki went public in 2021, it was valued at HKD 34 billion, raising HKD 4.84 billion, with cornerstone investors accounting for 23.6%. The IPO was highly popular, with 640,000 subscriptions and an oversubscription rate of 432 times. Despite this hype, its stock price dropped 14% on the first trading day and has since collapsed to HKD 2.39, wiping out HKD 30 billion in market value and leaving many investors with heavy losses.
Comparing financial data, Nayuki's revenues from 2021 to 2023 were RMB 4.297 billion, RMB 4.292 billion, and RMB 5.164 billion, with net profits of -RMB 4.524 billion, -RMB 469 million, and RMB 13 million, respectively. While the two companies' revenues are similar, Chabaidao has achieved consistent profitability with a net profit margin of 20%.
Why such a big difference when both are in the milk tea business?
The key lies in their business models. Under the franchise model, Chabaidao, as a supplier, sees guaranteed profits as long as franchisees grow, benefiting from economies of scale—the more franchisees, the lower the costs and the stronger the profitability.
Nayuki operates under a direct model, which is asset-heavy. It requires upfront investments in store rent, renovations, equipment, and staff salaries. While costs are fixed, new store performance is uncertain due to factors like location, costs, and foot traffic, making it difficult to achieve profitability in the short term. This often leads to a paradox where more stores result in greater losses.
Every advantage has its downside. The franchise model gives brand owners weaker control over stores, increasing risks like food safety issues. For example, Chabaidao was recently exposed during the 3·15 晚会 for altering ingredient expiration dates.
Profitability is what matters most. Overall, I believe Chabaidao has better profitability and clearer growth prospects. However, given Nayuki's precedent, which left deep scars in the capital markets, Chabaidao's current IPO aims to raise HKD 2.45 billion, making it the largest IPO on the Hong Kong stock market this year—yet it has no cornerstone investors. This could mean the company is either overvalued, has management issues, or faces uncertain future profitability. In short, institutional investors aren’t interested.
Chabaidao's current margin financing is insufficient, and it’s unlikely to trigger a clawback with oversubscription exceeding 15 times. There are 37,000 lots each for Group A and Group B. Assuming 5,000 applicants, the estimated one-lot winning rate is 100%.
Last time, I lost a lifetime’s worth of milk tea money betting on Nayuki’s IPO, so now I only drink Heytea. If I lose money again betting on Chabaidao’s IPO, I’ll have to switch to Mixue Bingcheng. To keep enjoying a variety of milk tea options, I’ll sit this one out.
$CHABAIDAO(02555.HK) $NAYUKI(02150.HK)
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