GUMING's listing has mixed feelings

Author | Liu Baodan

Editor | Zhou Zhiyu

At the beginning of the new year, "the third stock of new tea drinks" GUMING successfully landed on the Hong Kong Stock Exchange, marking the start of a new wave of listings for tea beverage companies.

On February 12, GUMING entered the capital market, with an opening price of HKD 10 on its first day of trading, set at the top of the offering range. However, GUMING's stock price fell by 6.44% and 1.51% in the first two trading days, failing to break the "breaking issue curse" of new-style tea beverage brands.

Zhu Danpeng, an analyst in the Chinese food and beverage industry, stated that the capital market is more focused on its sustainable development potential, buying into the future of the business. GUMING primarily targets third, fourth, and fifth-tier markets and is not a national brand, resulting in insufficient brand power and weak channel strength, making the breaking issue predictable.

In fact, the capital market's enthusiasm for new-style tea beverage brands is not high. In 2021, "the first stock of new tea drinks" Nayuki's Tea successfully went public, and in 2024, Cha Bai Dao also listed on the Hong Kong Stock Exchange, but both companies experienced breaking issues upon listing, especially Nayuki's Tea, which is positioned in the high-end market, with its stock price dropping over 90% from its initial listing.

Backed by Tencent and Meituan, GUMING's high opening price certainly reflects its strength, but the breaking issue also means that GUMING needs to prove its profitability through actions to gain support from secondary market investors.

Since opening its first store in Zhejiang in 2010, GUMING has promoted the expansion of its store network through a regional densification strategy and has built a large network of franchisees. As of December 31, 2023, GUMING's store network covers 9,001 stores, an increase of 35.0% compared to December 31, 2022, and is expected to expand to 9,778 stores by September 30, 2024.

According to the prospectus, in 2023, GUMING's GMV was 19.2 billion yuan, an increase of 37.2% compared to 2022. For the nine months ending September 30, 2024, GUMING's GMV was 16.6 billion yuan, an increase of 20.4% compared to the same period in 2023, with a growth rate exceeding most of the other top ten fresh tea beverage brands.

Based on the GMV of 2023 and the number of stores as of December 31, 2023, GUMING is the largest mass-market fresh tea beverage brand in China and the second-largest fresh tea beverage brand across all price ranges in China.

GUMING's IPO is happening at a critical juncture in the industry. According to a report by ZhiShi Consulting, in 2023, the GMV of China's fresh beverage market was 517.5 billion yuan, with a compound annual growth rate of 22.5% over the past five years. The market is expected to see a compound annual growth rate of only 16.7% from 2024 to 2028.

One reality that must be faced is that tea brands such as Cha Bai Dao, Hu Shang A Yi, and Xi Tea have begun to slow down their store expansion pace. On February 10, Xi Tea announced the suspension of its business partner application, stating that in the context of highly homogeneous product brands, an oversupply of store numbers, and a general decline in operational efficiency, expanding scale is not a real demand.

GUMING's advantage lies in its deep cultivation of the sinking market and its industry-leading cold chain warehousing and distribution system. Data in the prospectus shows that the average delivery cost from warehouse to store accounts for about 0.9% of GMV, and 97% of GUMING's stores can achieve "two-day delivery" cold chain coverage Among the nearly 10,000 stores of GUMING, 80% are located in second-tier cities and below, with town stores accounting for as much as 40%, making it the tea beverage brand with the highest coverage in China's sinking market. Through the "regional densification" strategy, GUMING has achieved dense coverage of over 500 stores in a single province in core provinces such as Zhejiang and Fujian.

This also provides GUMING with relatively considerable growth potential. Debon Securities believes that GUMING focuses on second-tier cities and below, which are expected to grow the fastest in the industry. As of 2023, provinces in mainland China that have not yet reached a critical scale account for a total of 48% of the overall tea beverage store market, still possessing ample expansion space.

However, the sinking market has become a key focus for tea beverage brands, and GUMING will undoubtedly face significant competitive pressure. Another factor to consider is that compared to first-tier core cities, the ceiling for tea beverage pricing in the sinking market is relatively low.

At the same time, market competition has begun to affect GUMING's franchisees, with the franchisee attrition rate rising from 6.2% in 2021 to 11.7% in 2024, and GUMING's store expansion number for 2024 is only 601.

GUMING is clearly aware of the issues at hand, and the company has decided to use the 1.813 billion raised from the IPO for the following purposes: enhancing digitalization in business management and store operations, improving supply chain management efficiency, strengthening support for franchisees, and enhancing brand building and product research and development capabilities.

Next, the capital market will also welcome two tea beverage brands, Mixue Bingcheng and Hu Shang Ayi. It is understood that Mixue Bingcheng plans to build a book by the end of February and officially list in early March, with IPO fundraising expected to be between 500 million and 1 billion USD.

After 14 years of development, GUMING has finally opened the door to the capital market. However, to continue to stand out in the fiercely competitive tea beverage sector, GUMING still needs to reveal more trump cards