Will the first to fall behind among the "three treasures of new consumption" be MIXUE?

As the stock prices of the "new consumption three treasures" in Hong Kong adjust, another foreign investment bank is pessimistic about MIXUE Ice City.

According to the news from the Wind Trading Desk, UBS's latest research report has significantly downgraded the rating of MIXUE Ice City from "Neutral" to "Sell," with concerns focused on two main aspects: 1) Overvaluation, which has fully reflected or even exceeded long-term growth expectations; 2) Overseas business facing significant setbacks, resulting in negative growth.

UBS has raised the target price for MIXUE Ice City to HKD 477.13, but there is still an 11% downside potential compared to the current stock price of HKD 536. Analysts believe that the 43x/36x price-to-earnings ratios for 2025/26 and the 2.2x PEG ratio have fully reflected long-term growth expectations, while the slow recovery of overseas business further weakens investment value.

For investors, this means that at the current valuation level, any expansion below expectations, margin compression, or intensified competition could trigger a valuation correction.

Wall Street Journal previously mentioned that Bank of America has downgraded MIXUE Ice City to "Underperform," revealing three key risks: Short-term fundamentals are difficult to support high valuations, overseas expansion and coffee business obstacles limit long-term growth potential, and valuation bubbles driven by capital flows may face corrections.

On Thursday, June 5, the "new consumption three treasures" in Hong Kong fell sharply, with Lao Pu Gold down over 9%, MIXUE Ice City down 7.7%, and Pop Mart down 1.22%; on June 6, the performance of the "new consumption three treasures" diverged, with MIXUE Group continuing to drop over 5%, Lao Pu Gold slightly down 0.11%, and Pop Mart closing up.

Overvaluation Becomes the Biggest Risk

UBS analysts pointed out that MIXUE Ice City is currently trading at 43x/36x expected price-to-earnings ratios for 2025/26, reaching the average level of peers in the new consumption sector, and its 2.2x PEG ratio is also higher than the industry average of 1.9x.

This valuation premium indicates that the market has fully digested optimistic expectations for its aggressive store expansion strategy, and unless the company can significantly exceed market expectations, the upside potential is limited.

From a risk-return perspective, UBS believes that the current valuation creates an imbalance in the risk-return ratio. In the base case scenario, the target price of HKD 477.13 implies a 16% downside from Thursday's closing price. Even in the bullish scenario, the stock price upside is only 8% to HKD 615.15, while the bearish scenario could see it drop to HKD 346.80, a decline of 39%:

Bullish Scenario (HKD 615.15, +8%): Assuming overseas business accelerates recovery, with 2,000 new overseas stores added in 2026, and overseas same-store sales growth reaching 5%, gross margin improving to 32.6%.

Base Case Scenario (HKD 477.13, -16%): Overseas business steadily recovers, with 1,000 new overseas stores added in 2026, and gross margin reaching 31.2%.

Bearish Scenario (HKD 346.80, -39%): Market competition remains fierce, overseas business continues to be sluggish, with zero new overseas stores added in 2026, and gross margin only reaching 31.1%

Overseas Business Faces Severe Setbacks, Recovery Delayed

The performance of MIXUE's overseas business has become a key factor for UBS's downgrade of its rating.

Despite MIXUE's efforts to improve overseas supply chain efficiency, it faces fierce competition from local brands and Chinese counterparts in Indonesia and Vietnam (which account for about 80% of overseas stores), leading to a recovery progress that is below expectations.

So far this year, the net number of overseas store openings is negative, and same-store sales growth is expected to decline by 35% in 2024 without showing significant recovery.

UBS expects the company to adjust the gross margin for overseas franchisees to improve their profitability and competitiveness. The proportion of overseas revenue to total revenue, which is expected to be 5.2% in 2024, is projected to decline to 4.5% in 2025, and will only recover to 5.3% by 2028.

UBS has lowered its earnings forecast for 2025-27 by 0.7-1.2% compared to previous estimates, mainly reflecting the slowdown in the expansion pace of overseas stores and weak same-store sales growth. However, due to the company's strong supply chain capabilities, gross margin and operating profit margin are expected to remain relatively stable.

Domestic Business Maintains Strong Growth

UBS stated that despite facing valuation pressure, MIXUE's domestic business still demonstrates strong growth momentum. So far this year, the company has opened about 6,000 new stores, including 5,000 under the MIXUE brand and 1,000 under the Lucky Coffee brand. Same-store sales growth for MIXUE stores recorded low single-digit growth, mainly benefiting from improved foot traffic, while Lucky Coffee's same-store sales growth nearly doubled, although the base is relatively low.

UBS expects that in the next 3-4 years, MIXUE will maintain a 15% annual store opening growth rate, with the total number of stores reaching 70,000 by 2028. This will mainly be achieved through continued penetration into lower-tier cities and increasing store density in existing regions, while benefiting from industry consolidation trends