Mixue Ice Cream & Tea: Doubling Down Domestically; Overseas Sweetness Remains Elusive

$MIXUE GROUP(02097.HK) In Dolphin Research's study of the leading freshly made beverage brand Mi Xue Bing Cheng, the first part explained Mi Xue Bing Cheng's business model, and the middle part estimated the domestic market potential. This part focuses on exploring two core propositions as the domestic market gradually matures:

1) Can the overseas market recreate Mi Xue?

2) With the stock price doubling within three months of listing, what risk-reward ratio is implied at the current price level?

Without further ado, let's dive into the main text:

1. Will overseas be a vast ocean of opportunities?

As various new tea beverage brands continue to open stores in China, especially in high-tier cities, market saturation is gradually increasing. To seek new growth, and establish a second growth curve, forward-thinking tea beverage brands have been testing overseas markets since 2018.

Due to Southeast Asia's geographical proximity to China, efficient and convenient raw material transportation, a large Chinese community, similar tea culture, a high proportion of young population, strong consumption power, and low labor costs & rent, it naturally became the first stop for almost every tea beverage brand going abroad.

Mi Xue is no exception. In 2018, it set Vietnam as its first overseas destination, using a strategy similar to its domestic approach, leveraging its domestic supply chain advantages to target the cost-effective market, with prices lower than existing local brands, quickly securing a foothold in the Vietnamese market. In 2020, Mi Xue entered Indonesia, the most populous country in Southeast Asia, using the same strategy and achieving rapid development. Currently, Mi Xue Bing Cheng has become the chain tea beverage brand with the most stores in both Indonesia and Vietnam.

By the end of 2024, according to the prospectus, Mi Xue's overseas stores are mainly concentrated in Indonesia and Vietnam, with these two countries accounting for 80% of Mi Xue's overseas stores. However, in terms of revenue, Mi Xue's overseas revenue only accounts for about 5%, which is much lower than companies like Pop Mart and Miniso, which rely on IP to go abroad (Miniso and Pop Mart's overseas business accounts for nearly 40%).

However, the story changed in 2024. As seen in the chart below, Mi Xue significantly slowed down its overseas store opening pace in 2024, adding only 564 stores, and in terms of revenue, there was a nearly 20% negative growth. According to Dolphin Research's calculations, the average revenue per store is estimated to have declined by over 30%. So, what went wrong? Is the overseas market already saturated?

Actually, that's not the case. According to Dolphin Research's analysis, the main reasons are:

1) Low initial franchise threshold, leading to rampant growth and severe store cannibalization

To quickly capture the market, Mi Xue's franchise policies in Southeast Asia were much more aggressive compared to domestic ones. For example, in some regions of Vietnam, franchisees could be exempted from franchise fees, management fees, and training fees within the first three years of the contract. Additionally, Mi Xue did not conduct much assessment on store locations and franchisee qualifications, leading franchisees to aggressively compete for prime locations to recoup their investments quickly. According to channel research, in 2024, there could be 3-4 stores within 500 meters in Jakarta, Indonesia, causing severe store cannibalization.

On the other hand, due to insufficient management by Mi Xue's headquarters over the Southeast Asian supervisory team in the early stages, some supervisors (similar to regional managers in China, responsible for managing and supervising franchisees) engaged in serious corruption, harming the interests of franchisees and causing the franchise system to experience temporary loss of control.

2) Incomplete supply chain, frequent stockouts

Since over 90% of Mi Xue Bing Cheng's overseas store equipment & raw materials rely on imports from China, and Mi Xue's supply chain system in Southeast Asia is far less complete than domestically, the logistics cycle is relatively long (some regions in Indonesia require orders to be placed two months in advance), resulting in a lower margin for error compared to the mainland.

According to channel research, due to a misjudgment in order planning in 2023, there was a nearly four-month large-scale stockout during the Ramadan period in the Indonesian market, causing sales to halve and severely damaging franchisee confidence.

Based on the above analysis, Dolphin Research believes that the essence of the severe short-term decline in overseas single-store performance is Mi Xue's rapid overseas expansion not matching its management and supply chain capabilities, rather than the overseas market approaching saturation.

However, Mi Xue is currently taking targeted remedial actions against the above two "weaknesses." On one hand, leveraging the funds raised from the listing, Mi Xue is reconstructing its supply chain in Southeast Asia. In 2025, the company launched the Southeast Asia Supply Chain Center project, integrating production, warehousing, and logistics functions to reduce reliance on cross-border transportation. Additionally, Mi Xue is actively promoting the local establishment of factories for core raw materials like ice cream and coconut milk in Indonesia and the Philippines to reduce transportation costs and shorten supply cycles.

With this set of measures, Dolphin Research expects that the supply chain stability of Mi Xue Bing Cheng in Southeast Asia will significantly improve in the future.

Regarding franchise & corruption issues, Mi Xue began recruiting local operation teams in 2024 to strengthen the selection criteria for franchisees and store locations, gradually phasing out non-cooperative franchisees from the early stages. On the other hand, starting in 2025, the company also strengthened the management of supervisors, establishing a strict accountability mechanism.

Finally, focusing on the overseas store opening potential, we mainly consider the Southeast Asian region (other regions have very few stores and are still in the pilot stage).

In terms of per capita disposable income, the consumption capacity of mainstream Southeast Asian countries like Indonesia, Malaysia, Thailand, and Vietnam is generally comparable to that of second-tier cities in China. China's second-tier cities have a total population of about 250 million, corresponding to 7,600 stores, which means 3.04 stores per 100,000 people.

With a population of approximately 700 million in Southeast Asia, assuming optimistically that the store density in Southeast Asia is comparable to that of second-tier cities in China, the upper limit of store opening space corresponds to 700 million/100,000*3.04 — 21,000 stores.

However, considering that brand awareness and supply chain completeness in Southeast Asia are not as good as in China, a neutral estimate with 70% density corresponds to nearly 15,000 stores, which is a threefold increase from the current level.

3. How to assess Mi Xue's current investment value?

1. Slowing store opening pace + declining same-store revenue is a foregone conclusion

In the previous text, we mainly discussed the store opening potential of Mi Xue Bing Cheng and Luckin Coffee in both domestic and overseas markets from an endgame perspective. To implement this into profit forecasts, we need to understand the mid-term store opening pace and changes in single-store revenue for Mi Xue Bing Cheng.

Firstly, regarding the store opening pace, combining the endgame store opening space estimates from the previous text, the domestic store opening limit for Mi Xue Bing Cheng + Luckin Coffee is around 70,000 stores. By the end of 2024, Mi Xue's total domestic store count had already reached 42,000. Combined with our previous judgment—that the high-speed expansion dividend period of Mi Xue's urban market is nearing its end—Dolphin Research assumes that the overall domestic store opening pace will slow down, with high-tier cities slowing down faster due to more intense market competition. In contrast, the lower-tier and rural markets, where Mi Xue has just fully opened franchise opportunities, are assumed to slow down at a slower pace. Based on the above deductions, Dolphin Research estimates that the domestic store count will reach 67,000 by 2029.

For overseas regions, we assume that as Mi Xue's supply chain construction in Southeast Asia gradually becomes complete, the expansion will shift from rampant growth to refined store opening, strengthening the selection criteria for franchisees and store locations, and enhancing supervisor management. The store opening pace will gradually recover, reaching 13,000 overseas stores by 2029.

Regarding single-store revenue, due to Mi Xue's high-speed store opening in previous years, Dolphin Research estimates that average single-store revenue has already started to decline from 2024. Therefore, we assume that as the store opening pace slows down in the future, single-store revenue will continue to decline, but the rate of decline will gradually narrow. Based on the above assumptions, Dolphin Research's revenue expectations for Mi Xue Bing Cheng over the next five years are as follows:

Overall, in the context of slowing store opening pace and declining average single-store revenue, Dolphin Research expects Mi Xue's revenue CAGR to slow to 12% from 2024 to 2029.

Comparing this growth with industry expectations, although Mi Xue's prospectus states that affordable freshly made tea under 10 yuan can still achieve a 20% compound growth rate by 2028, actual data from Narrow Door Restaurant Eye shows that the industry has already entered a net store closure state in 2024, making it difficult to achieve 20% growth.

According to Zhiyan Consulting, after the initial extensive development of various tea beverage brands, the future is expected to see intensified competition and gradually saturated market space, with the growth rate of new-style tea beverages expected to slow to single-digit growth.

Assuming high single-digit industry growth, Dolphin Research believes that under Mi Xue's 12% revenue compound growth expectation, there is still an implicit logic of increasing market share and market consolidation for leading chain brands.

2. Under the flywheel effect, profitability continues to improve

Dolphin Research has made relatively positive assumptions about Mi Xue Bing Cheng's profitability. Firstly, as Mi Xue Bing Cheng increases its self-supply ratio of raw materials, improves processing methods, and continuously enhances scale effects, the gross profit margin gradually rises.

On the expense side, due to the company's high-speed store expansion and listing in previous years, marketing and promotional expenses increased. After listing, Dolphin Research assumes that the company's sales expense ratio will decrease from 6.4% to 5%, and the management expense ratio will decrease from 3% to 2.5% as operating leverage is released. Overall, Dolphin Research expects Mi Xue Bing Cheng's profit CAGR to reach 18% from 2024 to 2029, faster than the 12% revenue compound growth rate.

3. Investment value judgment: A good asset, but short-term expectations are fully priced in

From a relative valuation perspective, based on Dolphin Research's previous profit forecasts, with Mi Xue's net profit CAGR expected to be 18% over the next five years, despite Mi Xue being an industry leader with the most complete supply chain system in the industry, coupled with its unique Snow King IP, allowing it to enjoy a certain valuation premium.

However, Dolphin Research believes that the current valuation of 40x for 2025 has priced in a significant amount of growth premium. Compared to other comparable companies in the freshly made tea beverage industry like Gu Ming, Cha Bai Dao, and Luckin Coffee, Mi Xue's PEG is 1.4, which is higher than other comparable companies.

Besides the premium brought by half of its shares still being locked, it can only be reasonably assumed that funds have already priced in part of Mi Xue Bing Cheng's success in overseas markets like Southeast Asia. However, the Southeast Asian market is still in the supply chain construction phase, and premature pricing may be overly hasty.

Assuming the Southeast Asian market is fully operational within five years, and the business model can support it in a highly competitive environment with a continuously rising profit margin curve, Dolphin Research believes this is a relatively optimistic scenario. Assuming WACC=10.3% and a perpetual growth rate of 3%, the DCF valuation of Mi Xue Bing Cheng under a relatively optimistic expectation is approximately HKD 530, which is zero premium compared to the current HKD 534 and a market value of HKD 200 billion.

Considering that from September this year to March next year, Mi Xue will enter the unlocking period, corresponding to this zero risk-reward ratio, Dolphin Research believes the cost-effectiveness is not high. For investors optimistic about Mi Xue Bing Cheng's overseas development, Dolphin Research also suggests waiting for the valuation to correct to below 25x (below HKD 400) and then considering entry based on the overseas expansion situation at that time.

4. Summary: A good company also needs a good price

Based on the analysis of Mi Xue in the previous two articles, a clear pattern can be seen:

Mi Xue Bing Cheng is indeed a good material in the freshly made beverage track. Unlike most tea beverage companies that focus solely on branding and franchising, it deeply participates in the entire industry's upstream and downstream:

1) Upstream, through deep supply chain layout (self-supply and self-processing) in a heavy asset model, it ensures stable inventory and extreme cost control.

2) Rare upstream capacity self-control also allows it to gallop in the low-price track, making it difficult to encounter competitors, ensuring high turnover of sales and achieving a positive cycle of scale effects.

3) In the downstream of the industry chain, in store management, it is similar to other players' franchise models, achieving brand monetization and extreme sales through efficient store management and brand output.

Essentially, it is a food (lemon, sugar, milk, etc.) processing factory with downstream brand power and franchise management capabilities, further delving into upstream food raw material self-supply.

Ultimately, before listing, through the "ant" army of 45,000 stores, it has completed a company's growth from 0 to 1, and from 1 to 100.

After listing, standing at this critical threshold of around HKD 30 billion, from the company's store opening plan and overseas expansion plan, the next step it needs to cross is:

a. The domestic store opening dividend period is basically at its end, and it must face the "devil-level" operational proposition of refining single-store efficiency;

b. Internationalization to establish a second growth curve.

On the first issue:

a. Domestic: With freshly made tea beverages going public one after another, whether it's Luckin's first-quarter guidance, Mi Xue Bing Cheng accelerating its efforts in the rural market, or industry players lowering franchise fees and competing on single product prices, all point to one thing—the "barbaric" high-speed development dividend period of the industry is nearing its end, and 2025 is likely to be a period of market chaos and consolidation at the end of the dividend period.

From a mid-term perspective, Dolphin Research further boldly speculates that a competitive landscape similar to the beer industry, transitioning from "chaotic competition to oligopoly," with industry concentration increasing again, is likely to accelerate in the next 3-5 years.

For Mi Xue Bing Cheng, its next challenge is: having gone through pre-listing single-store driven growth, the second half in the domestic market may need to focus on the "technical work" of improving single-store efficiency. From Mi Xue's own operations, with store density increasing, there is already pressure on single-store traffic being diverted, and negative growth in single-store revenue is a risk that needs to be taken seriously.

b. Can overseas grow a second curve? As domestic growth slows, whether future growth can be stabilized actually depends on whether the overseas market can recreate a Mi Xue Bing Cheng.

The short-term reality is that regardless of whether recreation is successful, 2025 will be a period of investment in the overseas market for Mi Xue Bing Cheng—the overseas supply chain is still under construction, so in the short to medium term, when Mi Xue Bing Cheng's supply chain is completed and it can reopen stores quickly, it may be a growth period for Mi Xue Bing Cheng.

c. Long-term perspective: Fortunately, in China, freshly made beverages still account for less than 2% of total beverage consumption, while in developed overseas markets, this proportion is generally over 15% (more in freshly made coffee).

Compared to its freshly made beverage peers, Mi Xue Bing Cheng has a unique advantage. Under efficient cost control and a positive cycle of scale effects, it has the potential to gradually penetrate some packaged beverages through store densification and new product development, offering similar prices with fresher taste in the long term.

Overall, from a medium to long-term perspective, if Dolphin Research were to choose a company in the freshly made tea beverage track, Mi Xue Bing Cheng would undoubtedly be the top choice. During the industry's reshuffle, Dolphin Research is optimistic that Mi Xue will attract more franchisees exiting from other brands, strengthening its scale effect with its extreme supply chain & store management efficiency advantages.

However, in the short term, Dolphin Research believes that the biggest issue Mi Xue Bing Cheng faces is that post-listing market competition is relatively sufficient, and there may be some overvaluation in the short term. Additionally, with Mi Xue's original shares gradually unlocking in the second half of 2025 and the first half of 2026, there will be some selling pressure.

Therefore, for investors optimistic about Mi Xue Bing Cheng's development, the most important thing is to wait for the valuation to correct to a reasonable level before considering entry. In the short term, without overseas market support, Dolphin Research believes that Mi Xue's valuation correction to below 25x PE for 2025 (corresponding to a valuation of around HKD 1,300-1,400 billion, equivalent to a single share price of HKD 350-360) may be a relatively safe hitting zone.

Related historical articles from Longbridge Dolphin:

March 13, 2025“The Pinduoduo of Freshly Made Beverages” Mi Xue Bing Cheng: What Gives the "Snow King" the Confidence to Reign?

June 10, 2025Mi Xue Bing Cheng: Luckin's "Misfortune," Mi Xue's Next Big Bet on "Fields and Farms"?