Text | Narrowcast, by | Lin Zhi
With the listing of Tea Baidao Hong Kong stocks and the subsequent three queues, Tea Beverage has officially started its financing journey in 2024.
But at present, the overall market performance is not optimistic.
Starbucks, a coffee chain brand, released its results for the second quarter of fiscal year 2024 on May 1, local time, with both revenue and net profit declining, and the stock price crashing, falling by more than 15.7% in a single day, the largest one-day decline in 4 years; As of May 13, it is down more than 20% this year.
Luckin Coffee announced its financial results for the first quarter of this year at the end of April, and the company's stock price has fallen by more than 30% since the beginning of this year.
Prior to this, Chabaidao, which was listed with the halo of "the largest IPO of Hong Kong stocks this year" and "the second share of new tea drinks", also had unsatisfactory stock price performance, and broke on the first day of listing; As of the 13th, the stock price fell 40% from the issue price.
Freshly made tea and coffee were once the biggest beneficiaries after consumption returned to normal in 2023, and tea brands, including Tea Baidao and Mixue, also showed strong profitability in the prospectus.
Behind the listing and the failure at the beginning of the first quarter, it is related to the valuation expectations of tea brands queuing up to go public, and also related to investors' conservative mentality towards consumer stocks, especially optional consumption, and it also reflects the industry characteristics of homogeneity, multi-giant and fast fashion attributes of the tea industry. The tea faucets that are queuing up to be listed in the future (Mixue Bingcheng, Gu Ming, and Shanghai Auntie) also need to adjust their capital expectations in a timely manner.
Why Chamomodo is not performing well
On the whole, the performance of Tea Baidao may be related to many factors such as the investment sentiment of the Hong Kong stock market, the high pricing valuation of Tea Baidao, and the intensification of competition in the tea industry.
Judging from the Hong Kong stock market, the overall investment sentiment in the secondary market has remained cautious since the beginning of this year, the market valuation is still under pressure, and consumption-related fields are not the focus of Hong Kong stock investors.
Since the beginning of this year, affected by many factors such as the Fed's repeated interest rate cut expectations, changes in the geopolitical situation, and tightening liquidity, the Hang Seng Index is still fluctuating and adjusting in the weak range of 15,000 to 17,500. Although the Hang Seng Index fluctuated and closed up 4.2% in the first four months of this year, the consumer sector significantly underperformed the market by industry, with the Hang Seng Composite Index - Consumer Staples (including Nongfu Spring, etc.) down 2.2%, and the Consumer Discretionary (including Naixue's tea, etc.) down 0.4%, second only to the healthcare (-21.5%) and real estate construction (-9.2%) sectors.
The relative downturn in the secondary market has also been transmitted to the primary market, with the number and volume of IPOs falling together, and breakdowns are also common.
Wind data shows that in the first four months of this year, the number of Hong Kong stock IPOs listed and the total amount of funds raised were 15 and HK $7.55 billion, respectively, down 25% and 41% year-on-year. Large-scale IPO projects are absent, and the number of small and medium-sized IPOs accounts for a relatively large number, mainly with a fundraising scale of HK$1-300 million, and only two with a fundraising amount of more than HK$1 billion.
Considering that large companies are more inclined to list when the market investment sentiment is good to obtain higher valuations, the absence of large-scale IPO projects also reflects the current low valuation of the Hong Kong stock market.
From the perspective of pricing, nearly seventy percent of the new shares listed from January to April this year are priced close to the lower limit of the pricing range; Breakage on the first day is also more common, with a breakage rate of 40%. The breakage of tea Baidao is naturally not an isolated case.
Chart: IPO performance of Hong Kong stocks since 2024 Data source: Wind
From the perspective of the listing of Tea Baidao itself, there are also many "concerns".
First, the issuance price was high, and the price-earnings ratio of Chabaidao at the time of its initial offering was about 20.6 times, while the price-earnings ratio of Luckin Coffee at that time was about 14.5 times. The pressure on the stock price dragged down the price-earnings ratio of Chabaidao, and by May 13, it had returned to the level of 12.34 times.
Second, the shareholding structure of Chabaidao is too concentrated, and it is still facing pressure to lift the ban in the short term. According to the prospectus, the company's founder Wang Xiaokun and his spouse are the actual controllers of the company and directly or indirectly hold more than 80% of the equity of Chabaidao. The high equity concentration of listed companies may affect the activity and price stability of stock trading, especially when Chabaidao is still facing pressure to lift the ban in the short term. In mid-2023, Chabaidao conducted a round of financing, raising about 1 billion yuan, with a lock-up period of 12 months.
Third, the listing of Tea Baidao did not introduce cornerstone investors. Nai Xue's Tea, which landed on the Hong Kong stock market at the end of June 2021, raised HK$5.03 billion in its initial offering, and introduced 5 cornerstone investors at that time, including UBS Fund, China Universal Fund, GF Fund, etc., and the base investment spent a total of HK$1.2 billion to subscribe for 25% of the issued shares.
The development trajectory of the new tea industry itself is also an important factor affecting the market's judgment on its valuation. In the context of the increasing saturation of the industry, the homogenization of "involution" is becoming increasingly intense.
According to the "China Tea Beverage Development Report 2023", the development and growth rate of the new tea beverage industry has begun to slow down in stages, the market continues to sink, and the price war is more intense; In 2022, the market size of ready-made tea drinks will only increase by 0.3% year-on-year. Entering 2024, leading companies are vying to go public, shifting from the battle of scale to the battle of financing.
Chart: Comparison of operating data of new tea companies Data source: Wind, financial reports and prospectuses of various companies
What is the impact of the subsequent valuation of tea companies?
Before Tea Baidao, Nai Xue's tea, the "first stock of new tea drinks", had already been cold in the capital market. Nai Xue's tea, which was listed at the end of June 2021, also suffered a breakdown, falling 13.5% on the first day, and the stock price has fluctuated downward since then. As of May 13, the share price has fallen 85% from the issue price.
However, tea companies are still scrambling to sprint to the IPO of Hong Kong stocks. Especially after the middle of 2023, under the background of the overall downturn in the primary and secondary markets of Hong Kong stocks and the poor performance of Nai Xue's tea stock price, Tea Baidao, Mixue Bingcheng, Gu Ming, and Shanghai Auntie have submitted statements to the Hong Kong Stock Exchange one after another; Tea and beauty have also repeatedly rumored the news of the proposed IPO in Hong Kong.
The reason is that, on the one hand, under the competitive pattern of multi-power competition, tea companies urgently need to raise funds to expand their business, and tea companies that have generally experienced multiple rounds of financing are facing the exit pressure of investors behind them; On the other hand, the pace of A-share IPOs is being tightened in stages, and many mainland food and beverage companies are turning to Hong Kong listings.
Wind data shows that no beverage companies will be listed on the main boards of Shanghai and Shenzhen in 2023.
However, the performance of the listed stock price of Chabaidao, which is under the halo of "the largest IPO of Hong Kong stocks this year", is expected to bring challenges to the rhythm and valuation of subsequent listed tea companies.
At present, the valuation range of ready-made tea companies to be listed in Hong Kong may be roughly derived from the following comprehensive comparative analysis.
If we refer to U.S. listed companies, because the valuation of U.S. stocks has always been at a premium to Hong Kong stocks, from the analysis of the overall valuation of stock indexes, the 10-year average price-earnings ratios of the S&P 500, Dow Jones Industrial Index, and Hang Seng Index of Hong Kong stocks are about 23, 20.8, and 10 times respectively, reflecting that the valuation of Hong Kong stocks is about a discount to that of U.S. stocks.
The U.S.-listed Starbucks traded at a price-to-earnings ratio of about 24.3 times at the end of April, and has now recovered to about 21 times after a sharp drop in its stock price. In addition, Luckin Coffee can still be traded in the OTC pink sheet market after being delisted from the U.S. stock market, with a P/E ratio of about 15-17 times, and the average P/E forecasts of SPDB International and Guohai Securities for Luckin Coffee in 2024 and 2025 are 12.6 and 9.7 times. However, the U.S. pink sheet market generally has low trading volumes, so Luckin Coffee's valuation is relatively cheap.
Therefore, based on the valuation of Starbucks and Luckin Coffee, it is speculated that the price-to-earnings ratio of Hong Kong tea and coffee-related companies is about 14-19.
If we refer to the overall beverage industry of Hong Kong stocks, the average price-to-earnings ratio of companies that have achieved profitability in the beverage industry (Wind classification) in Hong Kong stocks is about 18.6 times.
Specifically, the average price-earnings ratio of liquor companies is about 14-16 times; Nongfu Spring has a high price-to-earnings ratio of 39 times, on the one hand, as an industry leader, its business model has become stable, and on the other hand, the target has a certain scarcity, and Nongfu Spring is still the only mainstream "drinking water and beverage company" in the Hong Kong stock market. In terms of initial P/E ratio, the average initial P/E ratio of beverage companies listed since 2019 is 35 times, but the specific differences between companies are large (see chart).
Chart: Hong Kong Beverage Industry P/E Ratio PE and Market Capitalization Data source: Wind
If you refer to Nai Xue's tea, because it has just achieved profit, based on the leading forecast data of 14 institutions compiled by Wind, the average forecast of the price-earnings ratio of Nai Xue's tea in 2024 and 2025 is 27 times and 16 times. The latest price-to-earnings ratio of the newly listed Chabaidao has fallen back to about 12.34x, and there is currently little data on its earnings and valuation forecasts.
To sum up, the P/E ratio of Hong Kong stock ready-made tea companies from 2024 to 2025 is expected to be in the range of 14-22, and the P/E ratio will be relatively high if it is the first time.
If we conservatively refer to the P/E ratio of 19 times (slightly lower than the P/E ratio of the initial offering of Chabaidao), and roughly estimate the estimated net profit of Mixue Bingcheng in 2023 of 3 billion yuan (the realized profit of 2.5 billion yuan in the first three quarters), the valuation of Mixue Bingcheng is about 60 billion yuan. In the same way, based on the estimated profit of Gu Ming in 2023 of 1.35 billion yuan (1 billion yuan has been realized in the first three quarters), the valuation is about 25.6 billion yuan, and the estimated net profit of Shanghai Aunt in 2023 is 430 million yuan (roughly calculated (the realized profit of 324 million yuan in the first three quarters) is about 8 billion yuan.
If the Hong Kong stock market situation improves, liquidity improves, and the overall investment sentiment and valuation continue to recover, the listing valuation of ready-made tea companies is also expected to increase.
Can the ready-made tea track regain the favor of capital?
At present, there are still certain challenges if the listed valuation of tea beverage companies wants to rise sharply in the future.
From the perspective of the industry, the current investment and valuation of the consumption track tend to return to rationality. In particular, the optional consumption industry has a certain cyclical nature, which is closely related to the macro economy, household income, consumption structure and trends.
At the macro level, the Fed's interest rate cuts have been moving backwards, and financial market liquidity has tightened, which has had a certain impact on corporate financing activities and valuations. China's economy continues to recover, but there is still room for improvement in the intensity of the overall consumption recovery (China's total retail sales of consumer goods in the first quarter of this year increased by 4.7% year-on-year, slower than the overall GDP growth rate of 5.2%). In this context, investors' interest in the consumer discretionary sector has also weakened.
In the first four months of this year, the Hang Seng Composite Index - consumer staples and consumer discretionary sectors both closed down, underperforming the market. When it comes to the beverage industry, investors are also more inclined to leading beverage companies with stable business models, such as Nongfu Spring, but their stock prices have only risen 2.6% so far this year.
The same is true for U.S. stocks, the U.S. food, beverage and tobacco industry (Wind classification) has risen by about 4.2% this year, significantly underperforming the three major U.S. stock indexes (up 4.5%-9.5% during the period), while the semiconductor and semiconductor equipment industry led by about 35%.
Spring River Plumbing Duck Prophet. Starbucks' latest results for the second quarter of fiscal 2024 show that global same-store sales fell for the first time in more than three years. Among them, China's same-store sales fell 11% year-on-year. The company also forecasts full-year revenue growth to low single digits. Starbucks executives said that the fluctuations in performance were mainly constrained by the cautious attitude of consumers and the price competition of local Chinese brands. After the earnings report, Starbucks shares fell in response.
In the fluctuating economic and industry cycles, competition in the same industry is also intensifying. Frost & Sullivan, a consulting agency, said in the prospectus report of Tea Baidao that due to the increasing number of ready-made tea shop brands and the product differentiation of these brands in major aspects such as product supply and price level is not obvious, the competition may become increasingly fierce in the future.
Existing brands may need more innovation, differentiation and strategic adjustments to regain the favor of capital.