The world’s largest independent auto aftermarket services chain will pay nearly $200 million for an Australian peer, as it seeks to diversify beyond its anemic home market

Key Takeaways:

• Tuhu will gain 279 stores and $367 million in annual revenue with its planned purchase of Australia’s MyCar Tyre & Auto
• The move will help Tuhu diversify beyond China’s sputtering and ultra-competitive auto market, where its profit dropped 40% in the first half of this year

By Edith Terry

When Chen Min launched his online-to-offline business selling tires in 2011, he quickly discovered that couriers wouldn’t ship his products locally due to their heavy weight. So the former Hewlett-Packard software engineer took matters into his own hands, buying his own van to deliver tires to auto repair workshops around Shanghai himself.

Fast forward 15 years, when his business, Tuhu Car Inc. (9690.HK), has evolved into the world’s largest independent chain for aftermarket auto services, with 8,825 Tuhu Workshops in its network at the end of June. Nearly all of those are franchisees, supplied by the company’s 31 regional distribution centers across China and 738 local centers that can quickly supply auto parts to individual workshops.

His company thrived for years on a Chinese auto market that became the world’s largest, with an estimated 469 million vehicles on the road in 2025 as potential customers. But that math has also attracted new entrants, leading to price wars between Tuhu and others like JD Auto Care, backed by e-commerce giant JD.com, offering rock-bottom prices like 99 yuan packages for basic services.

Making matters worse, growth in China’s auto market has evaporated in recent years as the nation’s economy slows. As that happens, increasingly value-conscious consumers are looking for better deals for car repair and maintenance, or even putting off such work outright.

Faced with that reality, Chen began looking abroad by opening his first Tuhu auto repair shops in Hong Kong and Malaysia starting in 2024, building up a small network of 21 workshops in those two markets so far.

But he has suddenly stepped on the global accelerator, with Tuhu’s announcement last week of its plan to acquire Australian peer MyCar Tyre & Auto from German tire maker Continental AG for a payment of A$278 million ($194 million), which is based on the company’s enterprise value of A$403 million plus adjustments for net debt and working capital. Tuhu said it has secured 1 billion yuan ($149 million) in acquisition financing from its banks, with other funding coming from internal resources.

The enterprise value is approximately 25.5 times MyCar’s pre-tax profit of A$15.8 million last year, and the deal is still awaiting approval by Australian regulators.

Smaller market, older cars

Government data shows Australia had just 22.3 million registered vehicles on the road in January 2025 – a tiny fraction of China’s total – and the market is roughly flat in terms of sales growth. But the average age of vehicles is 11.54 years, making the country fertile ground for aftermarket services and maintenance.

Australia’s market for such services was worth $8.3 billion in 2025 and is growing at 5.3% annually, according to GMI Research. Tuhu should also find some synergies from its core China business as a growing number of Chinese brands like BYD and Great Wall enter the market. As China revs up its motor vehicle exports, Chinese cars accounted for 35.5% of new car sales in Australia in June alone. And as the first Chinese-owned repair chain in the market, Tuhu could be well placed to capitalize on that trend.

MyCar’s network of 279 stores last year made it a major player in a market still dominated by German and Japanese car brands. Unlike Tuhu’s franchise business model, MyCar’s workshops are self-operated. The chain also has its own apprenticeship training system with about 200 trained technicians.

MyCar’s revenue of A$524.6 million last year is about one-seventh Tuhu’s 16.46 billion yuan for the year, and would have boosted Tuhu’s figure by 15% to about $2.8 billion if the two were combined.

Investors gave the deal a strong thumbs up, with Tuhu’s shares rising 11.3% the day after the announcement last week. With a price to earnings (P/E) ratio of about 32, Tuhu’s stock may seem pricey at current levels. By comparison, U.S. giant AutoZone (AZO.US) trades lower at a ratio of 20, while O’Reilley Automotive (ORLY.US) trades at 27. And despite Tuhu’s rich valuation, 10 out of 12 analysts surveyed by Yahoo Finance still rate the stock a “buy” or “strong buy.”

Stalling home market

Tuhu has good reason to be looking abroad for growth, as its China business shows signs of stalling, especially on its bottom line. The company’s revenue grew by 11% year-over-year to 8.8 billion yuan in the first half of 2026, which looks relatively respectable given the bad state of China’s car market. But its gross margin fell by nearly 2 percentage points to 23.3% in the latest six-month period from 25.2% a year earlier, while its net profit fell by an even steeper 40% to 184 million yuan.

The company’s transacting users, a key metric, rose 17.2% to 31 million in the first half of 2026 from 26.5 million a year earlier, while registered users of its apps rose by a similar 16.4% to 175 million.

The numbers show that Tuhu’s user base is still expanding, along with its store network, which grew by 22.5% year-on-year with the addition of 817 new workshops in the first six months of the year. That expansion rate was double the company’s revenue growth for the period, showing how competition was pushing down average transaction values. Tuhu did not present specifics regarding average transaction values, but the element was cited as a major factor affecting its business in its 2025 annual report “as more customers opted for cost-effective products.”

While Tuhu might not want to be specific about price competition, Chinese social media is awash in tips about how to avoid ripoffs by independent auto repair and maintenance vendors offering prices 40% to 60% lower than similar direct services from major auto brands. Tuhu’s franchise-based business model also opens it up to complaints about service problems and inconsistency, since it has less control over those outlets’ day-to-day operations.

Car owners have complained that after ordering products online, they were pushed to buy more expensive products at Tuhu’s workshops by technicians claiming the original products were out of stock. Such issues should be less problematic at the company’s new Australian operation, since those stores are all directly operated by MyCar.

Australia isn’t the only global marketplace where Tuhu is looking for opportunities. The company also disclosed in late June that it made a confidential filing for a U.S. IPO, which would complement its existing Hong Kong listing. That suggests that Chen Min is looking for funding channels beyond Hong Kong, possibly for additional acquisitions to take it further beyond its original China market.

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BOOX brand owner Onyx is seeking a Hong Kong listing as it maintains revenue growth by selling stockpiled chips to offset falling sales of its core devices

Key Takeaways:

• Resales of stockpiled chips accounted for all of Onyx’s revenue growth in the first half of 2026, while sales from its two main e-paper lines fell 4.7%
• The Hong Kong IPO applicant’s inventory rose 50% in the first half of 2026, absorbing cash as its bank borrowing more than doubled

By Hu Minghe

For a company best known for its paper-style electronic reading screens, Onyx International Inc. has found its latest source of growth somewhere unexpected: reselling stockpiled computer chips.

The Guangzhou-based maker of BOOX readers and digital notebooks filed for a Hong Kong IPO last week, hoping investors won’t mind a shifting sales profile that’s taking it away from its core business, at least temporarily. Its bigger challenge is to keep consumers interested in its dedicated screens for reading and writing, even as smartphones commandeer a growing slice of that market.

Onyx and its peers are also being challenged right now by rising chip prices that are wreaking havoc on smartphone and PC makers, whose core product sales are falling as they are forced to raise prices.

On the top line, at least Onyx appears to be holding its own. Its revenue rose 7.4% to 574 million yuan ($85 million) in the first half of 2026 from 534 million yuan a year earlier. But a deeper dive shows that resales from its inventory of stockpiled chips contributed 55.7 million yuan of the revenue growth, accounting for the entire increase and more.

Sales from the company’s two main device lines fell 4.7% year-on-year, and their combined gross profit dropped 11.7% as reader sales collapsed. Gains in “other products and services,” attributed mainly to chips, more than offset that gross-profit decline. Still, Onyx’s net profit fell 24% to 53.3 million yuan over the six-month period, as higher expenses and other costs outweighed the modest gross-profit gain.

Rising component costs, especially for memory chips, are testing Onyx and its rivals. Amazon (AMZN.US) raised its basic Kindle price in the U.S. from $109.99 to $149.99 in August, blaming higher memory and storage costs. Chinese e-reader maker Hanvon (002362.SZ) was keeping its prices unchanged despite cost pressure, vice president Wang Jie told Huaxia Times in August, describing the devices as discretionary purchases.

Chip stockpiling

As chip prices began rising in the second half of 2025, Onyx began buying more of the component to hedge against future price increases. That paid off later as it sold some of its stockpile at market prices after retaining enough components to meet its own production needs.

Even so, its inventory rose 50% between December 2025 and June 2026 to 748.8 million yuan, about three-quarters of that raw materials. Its operations used 198.7 million yuan in cash during the first half of the year, and its bank borrowing more than doubled over that time. Management says the raw material inventory is enough to support production and deliveries for this year and next.

Chairwoman Dan Yuting, formerly chief representative in China for electronic-paper specialist iRex Technologies, co-founded Onyx in 2008. The company established its BOOX brand in 2009, when it designed its first reader with handwriting capabilities.

Customers and distributors outside Greater China supplied 54.6% of Onyx’s revenue in the first half of this year, with Europe contributing 20.1% and the U.S. 17.7%.

Back at home, Amazon closed its China Kindle e-bookstore in June 2023 and ended downloads a year later, yielding the market to local rivals like Onyx. BOOX’s Android-based devices can run Tencent’s WeRead, letting Chinese users keep a familiar reading app while moving to a paper-like screen. But the trend towards reading on smartphones continues to undercut e-reader makers, with China’s latest national reading survey finding that 79% of adults read on their phones in 2025.

After all, extra screens like Onyx’s still cost money, and take up extra space for consumers on the go. BOOX’s Chinese website lists its readers from 899 yuan, with some models above 3,000 yuan. In the U.S., its six-inch Go 6 (Gen II) lists at about $200 before tax, compared with $150 for the basic Kindle with lockscreen ads. Buyers must see enough value in reading comfort, app choice and writing tools to justify another device.

E-reader appeal

Jessie Liu, a Hong Kong media professional in her 30s, bought a BOOX Go Color 7 two years ago. She liked its screen, larger than the basic Kindle’s six inches, and says Kindle had no color model when she bought it. But given the choice, she said, she would probably recommend buying a Kindle to her friends.

A Beijing tech founder in his 40s said he had owned four or five Kindles, which were his main way of reading before Amazon’s exit. He later bought a BOOX device on a friend's recommendation, but was lukewarm on the product. “There's nothing especially great about it, but nothing really wrong with it either," he said.

Research firm RUNTO links the appeal of dedicated e-readers to better color displays and software. Pen-enabled notebooks expand the uses beyond books, letting professionals annotate reports and keep handwritten notes.

Onyx says customers are shifting toward handwriting-enabled devices as demand for read-only products ebbs. Revenue from its reading-focused products fell by more than half to 104.3 million yuan in the first half of 2026, while their gross margin fell to 26.2% from 35.8% a year earlier. Management attributed the margin pressure to discounts on older readers, a lower-margin product mix and higher chip costs.

By comparison, Onyx’s revenue from notebooks rose 32% to 383.7 million yuan over the same period. But strong sales for smaller models pulled average selling prices down 22%.

China’s e-reader and notebook market showed notably different trends from Onyx’s. RUNTO recorded a 22.3% rise in reader unit sales in the first half of 2026 from a year earlier and a 30.5% decline in office notebooks. BOOX ranked third in China’s overall online e-paper tablet market over that period, with 17.5% of the market by unit sales.

Traditional e-reader and e-notebook makers like Onyx also face competition from other directions. iFlytek (002230.SZ) makes devices that combine handwriting with meeting transcription, while Amazon’s Kindle Scribe and reMarkable notebooks also handle writing and documents.

Onyx plans to use its listing proceeds for R&D, sales and marketing, acquisitions and investment, production and supply-chain upgrades, and working capital. Its IPO valuation is still a work in progress. A 2024 transaction involving a Lenovo-controlled investor implied the company was worth just over 1 billion yuan at that time, though the transaction involved existing shares and special investor rights.

That means it will be up to Hong Kong investors to determine how much the company is worth now. But with management expecting chip resales that fueled the company’s growth this year to diminish, prospective investors must judge whether Onyx’s core readers and notebooks have a future in the face of the growing challenge from smartphones.

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The world’s largest smartphone ODM is using acquisitions to cater to booming demand for AI infrastructure

Key Takeaways:

• Longcheer has revised terms for its acquisition of an AI infrastructure company, reducing the size of its stake and making performance targets stricter
• The world’s largest contract smartphone manufacturer is tapping demand for AI infrastructure with a recent string of acquisitions 

By Edith Terry

For years, its calling was making millions of smartphones that have become a fixture of everyday life for most people around the world. But these days, original design manufacturing (ODM) giant Shanghai Longcheer Technology Co. Ltd. (9611.HK, 603341.SH) is making a new bet on AI infrastructure that has become the flavor of the day among tech manufacturers.

But its roadmap, driven by acquisitions, hasn’t been completely smooth. With global demand for AI data centers growing fast, the company looked like it had a good plan last month when it announced it would purchase of 80% of Suzhou A-Rack Information Technology, a maker of data center equipment like server racks and power distribution units (PDUs).

It made the announcement just a few weeks before disclosing midyear results for 2026 that showed its core smartphone manufacturing business wasn’t going anywhere fast. Its revenue fell 6.3% to 18.7 billion yuan ($2.78 billion) in the first half of the year, while its profit fell by an even steeper 30.9% to 245.9 million yuan.

But then last week Longcheer abruptly announced it was reducing the size of the A-Rack stake it was buying to just 60%, in what looked like a hedging of its bet by investing less. It took the step after the Shanghai Stock Exchange, following the initial August announcement, issued a letter warning on integration risks, as well as a large gap between A-Rack’s financials and performance targets set by the two sides.

The lowering of its stake reduced Longcheer’s purchase price from an original 1.12 billion yuan to 840 million yuan, while leaving A-Rack’s valuation unchanged at 1.4 billion yuan. It also modified terms of the agreement by introducing penalties if A-Rack failed to meet performance targets, in a seeming acknowledgement that perhaps Longcheer had been too eager to sign the original agreement without taking all the risks into account.

The revised agreement also requires A-Rack founder Ding Zhiyong to buy at least 50 million yuan worth of Longcheer’s Shanghai-listed shares within 12 months, which would then be subject to a 12-month lockup period.

Investors in both Shanghai and Hong Kong applauded the revised terms that lowered Longcheer’s exposure and made A-Rack more accountable for its post-deal performance. The Shanghai stock rose by 10.8% over the next two trading days, while the Hong Kong stock rose by 5.2% over the same period.

A-Rack is one of three purchases Longcheer has made this year in a bid to buy its way into AI infrastructure manufacturing. In June it paid 540 million yuan for 60% of KC Precision Technology and Dongguan Geeia Metal Products. KC Precision makes high-precision metal etching products for consumer electronics, while Geeia makes thermal management devices for data centers.

According to Grand View Research, the global AI data center market that Longcheer is targeting is expected to grow from $147.3 billion in 2025 to a projected $810.6 billion in 2033, averaging about 25% growth annually over that time. In addition to powerful computing chips, AI data centers also require thermal management systems to dissipate the huge heat given off by those chips, as well as large amounts of electricity to power them.

Post-IPO weakness

In addition to its core smartphones, Longcheer’s current business also includes ODM services for other electronics like tablet PCs, AI of things (AIoT) devices and car electronics. In its prospectus ahead of its Hong Kong IPO in January, it cited third-party market data saying it was the world’s second largest ODM manufacturer of consumer electronics in 2024, based on shipments, and the largest smartphone ODM. Its A-list of smartphone customers includes the likes of Xiaomi, Samsung, Honor, Oppo and Vivo.

Hong Kong investors initially welcomed Longcheer, which raised around HK$1.52 billion ($194 million) in its January IPO whose retail portion was 15 times oversubscribed, and whose cornerstone investors included Xiaomi and Qualcomm. The stock briefly rose from its IPO price of HK$31 after its trading debut. But it quickly reversed course and has moved steadily downward since then. Its Wednesday close of HK$21.40 is about 30% below its IPO price, as investors flock to sexier stocks with greater growth potential.

While more favorable terms under the revised A-Rack transaction provided a brief respite for the stock, the reality is that Longcheer’s financials are nothing to brag about. Its revenue fell 7% in 2023, before rebounding strongly by 70% in 2024, only to fall again by 9.3% to 42.1 billion yuan last year. The company’s annual profit has also fluctuated, but has generally ranged between 500 million yuan and 600 million yuan every year since 2022.

The company’s main revenue driver in 2025 was a 41% increase in sales of AIoT products, which rose to 7.8 billion yuan to account for 18.5% of revenue, driven by growing demand for AI glasses and other smart eyeware. Smartphones still accounted for about two-thirds of its sales, or 68.6% of revenue at 28.9 billion yuan. But that figure was down by a sharp 20%, from 36.1 billion yuan in 2024, as sales by many major brands slumped after they were forced to raise prices due to soaring memory costs.

So, how does Longcheer compare to its peers? Its closest rival is Huaqin (3296.HK, 603296.SH), which also manufacturers smartphones but is pushing into data center infrastructure and robotics. Huaqin’s Hong Kong-listed shares carry a price to earnings (P/E) ratio of about 17, similar to Longcheer’s multiple of 18.4 for its Hong Kong shares.

But Huaqin’s revenue has been on a steadier upward track, including 55% growth last year to 172.4 billion yuan. Its net profit also increased by more than 50%, from 2.7 billion yuan in 2023 to 4.1 billion yuan in 2025. Like Longcheer, Huaqin’s Hong Kong shares haven’t fared too well since their April IPO, currently trading about 8% below their offer price.

Nonetheless, analysts are still relatively bullish on both companies, with those surveyed by Yahoo Finance giving them “buy” ratings. Perhaps they’re lured by the AI angle, which has fueled explosive gains for many related stocks over the last year.

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GAC plans to issue new shares in exchange for an equity stake in a vehicle joint venture held by FAW, though detailed transaction specifics have yet to be disclosed

Key Takeaways:

• GAC will use shares from its Shanghai-listed entity to pay for a partial equity stake it plans to acquire in a joint venture of rival FAW
• China’s auto regulator has issued a notice encouraging mergers and restructuring for companies from the nation’s oversupplied car sector

By Bai Xin Rui

A decade of rapid buildup, first in traditional internal combustion cars and more recently in new energy vehicles, has left China’s auto industry with an oversupply hangover, complete with price wars and shifting global supply chains. Now, the industry is in sore need of consolidation, which has yet to really materialize.

But that could be changing, following an announcement last week by Guangzhou Automobile Group Co. Ltd. (2238.HK; 601238.SH), one of China’s largest state-owned giants, of a new letter of intent with rival FAW Group. GAC said it plans to acquire an equity stake in a whole-vehicle joint venture held by FAW, which will receive newly issued shares from GAC’s Shanghai-listed entity as payment. The move will make FAW GAC's second-largest shareholder.

Buoyed by the news that hinted at consolidation of two major players, GAC's stock initially surged as much as 16% the day after announcement, before giving back much of that to close up a more modest 2.6% for the day.

Strong brand lineups

Just three days before the announcement, China’s Ministry of Industry and Information Technology (MIIT), which oversees the auto sector, held a press conference where it indicated its support for consolidation and restructuring of China large automakers, including through integration of their R&D departments and production resources to ease overheated competition. That led some to predict consolidation among state-run players, since such companies often take their cues from policies originating in Beijing.

GAC was established in 1997 and is the largest automaker in Guangzhou, capital of South China’s affluent Guangdong province. It is overseen by the Guangzhou branch of the State-owned Assets Supervision and Administration Commission (SASAC), the national organization that oversees all of China’s largest state-owned assets. Its portfolio of brands includes Trumpchi and Aion, and it also has joint ventures with Japanese giants Toyota (7203.T) and Honda (7267.T).

FAW is one of China’s oldest car makers, previously known as First Auto Works, and is the largest automaker in northern China, with headquarters in Changchun, capital of Northeastern Jilin province. Along with Dongfeng Motor and Changan Auto, it is a first-tier state-owned enterprise directly overseen by SASAC, rather than a local branch like GAC is. FAW's brands include Hongqi and Jiefang, and the company also has joint ventures with Toyota and Volkswagen (VOW.DE).

Some initially thought the announcement might presage a merger between GAC’s and FAW’s separate Toyota joint ventures. But while the transaction does involve FAW Toyota, GAC will not fully acquire all of FAW’s equity in FAW Toyota, according to a report in financial magazine Caijing.

Specifics of the tie-up have yet to be disclosed. But it’s no secret that overheated competition in China’s auto sector has wreaked havoc on most companies’ finances, including GAC’s. The company lost a massive 4.47 billion yuan ($667 million) in the first half of the year, wider by 76% from its loss a year earlier. Its gross margin stood at a negative 4.25%, meaning it lost money on every vehicle it sold.

The company blamed the dismal performance on intense competition at home, locally referred to as “involution,” along with rising raw material costs. Its joint venture brands also came under pressure, even as sales volumes declined, further adding to the company’s woes.

10-year low profit margins

The central government hasn’t sat by idly during the bloodbath, rolling out a steady stream of new policies over the last two years aimed at stabilizing the industry. But those measures have had little effect. According to data from the China Passenger Car Association (CPCA), the automotive industry’s profit margin dropped from 6.1% in 2021 to just 4.1% in 2025. And the situation shows no signs of easing. The average profit margin for full-vehicle manufacturing in China sank further to a scant 1.5% in the first half of 2026, marking a new 10-year low, according to Chen Shihua, deputy secretary general of the China Association of Automobile Manufacturers (CAAM).

M&A is seen as one of the few remaining ways to ease the involution, and reaction by investment banks to the GAC-FAW tie-up has been generally positive. Citi believes that FAW will wield strategic influence at GAC after becoming its second-largest shareholder, and viewed the move as China's first concrete action in promoting consolidation of state-owned automakers, aligning with the country’s latest Five Year Plan launched this year.

Meanwhile, Daiwa estimates the tie-up will produce a cross-shareholding structure that will promote broader strategic cooperation between the two automakers. But Daiwa also noted that the automotive industry is currently weak, and said it expects that more significant financial improvements may take several years to materialize. It also pointed out the deal could signal more similar tie-ups down the road, which would benefit the entire automotive industry.

Faced with the harsh industry winter and profit margins at a decade low, the cross-regional equity restructuring between GAC and FAW may sound to many like the first step in a wave of mergers and restructuring among Chinese automakers over the next five years. In addition to breaking down barriers between central and local state-owned enterprises, the deal sends a strong signal of Beijing’s determination to eliminate cutthroat competition and curb excess production capacity once and for all.

Investors generally see the cross-shareholding arrangement between GAC and FAW as a positive signal for integrating industry resources and bringing back market discipline. But as price wars roll on, undercutting margins, merely relying on incremental reinforcements at the equity level may not be enough to provide near-term relief for most companies. In the longer run, GAC and FAW will need to show that they can generate substantial synergies in areas like technological R&D and supply chain efficiency, which will determine the success of any new restructuring wave.

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The company is using technology for things like new ingredient discovery as Chinese consumers seek increasingly individualized products

Key Takeaways:

• Yatsen is turning to AI and other high-tech methods as consumers look for skincare and cosmetics products to meet their individual needs
• The company fell back into the red on a non-GAAP basis in the second quarter as its gross margin deteriorated and it spent heavily on marketing

By Teri Yu

It’s known for the everyday cosmetics and skincare products sold at its well-known chain of Perfect Diary stores across China. But these days, Yatsen Holding Ltd. (YSG.US) is turning to AI, biotech research and automated manufacturing as it seeks an edge in China’s fiercely competitive market, where increasingly sophisticated consumers are demanding new leading-edge products that are more than just the same old story in prettier packaging.

At its Guangzhou manufacturing hub, a joint venture with South Korea’s Cosmax (192820.KS), the New York-listed company is combining automated production and a new generation of quality-control systems with AI-assisted ingredient discovery, formulation development and clinical assessment to quickly bring new targeted beauty products to market.

Spanning 78,000 square meters, the state-of-the-art manufacturing facility began operations in 2023. Billed by the company as Asia’s largest single cosmetics plant, it serves as the production hub for its various product line, including Dr. Wu, Perfect Diary, Little Ondine and Pink Bear. The massive facility, viewed by Bamboo Works at a media event in Guangzhou last week, is central to the company’s broader effort to integrate product development, manufacturing and quality assurance. All that is happening as it rapidly expands a skincare business that surpassed its older cosmetics line to become its biggest revenue source last year.

Focused on China

China remains Yatsen’s top priority, though it’s also exploring opportunities globally, Chairman David Huang told reporters on a tour of the facility last week. “We are starting to bring products into Asia and Europe, and potential other markets as well,” he said.

Addressing a rise in marketing expenses to over 70% of revenue, Huang said Yatsen’s profitability had steadily improved, pointing out the company achieved a full-year profit last year on a non-GAAP basis. He explained that Yatsen remains committed to investing in brand building, as its existing brands have yet to reach their full potential. Those efforts, he added, are already raising brand awareness and improving consumer perceptions.

The strategy comes as Yatsen’s skincare business, which includes Galénic, Dr. Wu and Eve Lom, becomes its main growth engine. In the three months to June this year, the company’s revenue rose 5.1% from a year earlier to 1.14 billion yuan ($168.3 million).

Revenue from its skincare brands jumped 40.4% during the quarter to account for more than 70% of its sales, after passing the 50% mark a year earlier. Revenue from its older color cosmetics fell 35.8%, reflecting continued pressure on Perfect Diary and other makeup labels in a crowded Chinese market.

The divergence underscores Yatsen’s transformation to skincare. Aggressive digital marketing, celebrity partnerships and social commerce made Perfect Diary one of China’s best-known cosmetics brands in the company’s earlier days. But that model faces pressure from growing consumer caution and intensifying competition from both domestic and global rivals in a crowded market.

Yatsen reported a net loss of 90.8 million yuan in the second quarter, much wider than its 19.5 million yuan loss a year earlier. It also recorded a non-GAAP loss of 99.4 million yuan for the period, after being profitable on that basis a year earlier. Its gross margin fell to 73.9% from 78.3%, suggesting it still faces challenges in its transition to skincare.

As its business metrics struggle, Yatsen’s stock has lost more than three-quarters of its value over the last 52 weeks, giving back all the gains and more from a strong rally in the first half of 2025.

New brands

Asked whether it was considering buying another skincare brand or pursuing new partnerships, Huang said Yatsen remains focused on its existing brand portfolio, but added the company doesn’t rule out looking at other assets with strong brand equity and product performance.

“A multi-brand strategy has been part of the company’s vision since day one,” Huang said, adding Yatsen sees potential to apply skincare technologies into color cosmetics, including through “makeup skintification.” It introduced such products as early as 2023.

That company’s consumer focus is increasingly centered on functional skincare, an area where buyers seek products targeted at specific concerns rather than broad, general-purpose beauty claims, said Johnny Chen, general manager of the Dr. Wu line. He added that Chinese consumers were moving toward more specialized skincare products as they became more informed about ingredients, efficacy and their individual needs.

As an example, Chen cited Dr. Wu’s mandelic acid toning water, which recorded triple-digit year-on-year growth over the past few years, continuing into the first part of this year.

AI is also changing how consumers research products, the company said. Instead of passively receiving promotions from influencers and media, more are using AI tools to seek answers tailored to their age, skin type and specific concerns, making them more active in assessing potential different solutions.

The company is investing heavily to underpin its marketing claims with research. Yatsen has spent more than 770 million yuan on product development since 2022, and R&D expenses represented about 3.3% of its revenue in the latest quarter. It operates research centers in Shanghai, Guangzhou and Toulouse, France.

The Guangzhou center in the city’s Conghua area includes a 3,000-square-metre testing center with instruments valued at more than 10 million yuan, according to the company. The center monitors more than 50 quality parameters beyond typical industry standards, it added.

The factory also uses automated robotic arms and automated guided vehicles for materials handling and packaging. Solar power, wastewater recycling and purification systems form part of its sustainability and efficiency program, Yatsen said.

Yatsen works with scientists internationally and participates in joint research programs, the company’s Chief Scientific Officer Jing Cheng said. Its European research presence also helps the company study differences between consumers in Asia and Europe, with those insights feeding into product development.

AI is a key part of that effort. Yatsen said it began building AI capabilities early and has applied them across all its brands, not just Dr. Wu. The company said it uses AI tools to screen active ingredients, identify biomarkers and explore combinations of ingredients to amplify efficacy. It is also using AI to develop new molecules, some of which remain in the pipeline.

Yatsen said it was a pioneer in China by using AI-based molecular docking to identify three PDRN efficacy boosters, thus enhancing the product’s anti-aging efficacy. The company said the technology shortened ingredient discovery from years to just months.

For now, Yatsen is positioning its Guangzhou manufacturing base as a link between consumer research, product development and scalable production. Its challenge will be to show that investments in science, AI and more tightly managed production can deliver products that meet increasingly specific consumer needs and create a durable competitive advantage in China’s fast-changing beauty market.

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The food and edible oil producer’s profit declined 3% in its latest fiscal year, but its total returns from share price gains and dividends are nearly 80% over the past decade

Key Takeaways:

• Lam Soon reported a modest revenue gain in its latest fiscal year, but its profit was undermined by rising raw material prices
• Trading volume in shares of the food and edible oil producer is extremely thin, amid speculation the company may be privatized

By Cheng Shui Tong

It’s a household name in Hong Kong, known for such everyday items as its Knife-brand cooking oil and Axe dishwashing liquid. But that everyday consumer nature – and the slow but stable growth it usually brings – doesn’t excite investors these days, and even has some betting on a future privatization bid for Lam Soon (Hong Kong) Ltd. (0411.HK).

The company’s latest financial results, released last week, contained more of its time-tested formula, including a 5% revenue increase to HK$5.06 billion ($649 million) for its fiscal year through June. Its profit declined by 3.2% to HK$293 million, while it boosted its final dividend to HK$0.35 per share from HK$0.33 HK a year earlier. The dividend hike got investors excited, lifting Lam Soon’s shares by nearly 4% to HK$11 after the announcement.

While it’s well-known locally in Hong Kong, Lam Soon is entirely inconspicuous in the eyes of investors in the city’s more international stock market. It went public in 1972, around the same time as other local corporate luminaries like conglomerate Cheung Kong, as well as property developers Sun Hung Kai and New World Development.

Lam Soon may fail to match the other big names in terms of stock performance over the last 50 years, especially the property stocks that thrived off the city’s booming real estate market and later parlayed that success into Mainland China. But the company has excelled nonetheless because its business is steady and unaffected by economic cycles. And if calculated over the past decade, its returns have actually outperformed many much larger companies.

Market outperformer

Lam Soon's shares have generally hovered around the HK$10 mark over the last decade. The stock stood at around HK$8.50 some 10 years ago, meaning it’s currently up about 30% from that at the current HK$11 price. And after adding the HK$4.28 in total dividends over the last decade, anyone who bought the stock 10 years ago and held it has earned a roughly 80% return over that time.

Compare that with the benchmark Hang Seng Index, which even after adding an average annual dividend yield of more than 3%, still falls short of Lam Soon in terms of returns. Major real estate developers mostly trade lower now than they did a decade ago due to the recent property slump, meaning their total returns similarly fall short of Lam Soon.

Lam Soon's bread-and-butter, so to speak, is food and edible oil products, as well as cleaning supplies, which are daily essentials in economic good times and bad. That may be relatively dull for investors chasing high growth, and the stock is likely to underperform when the broader market and the economy are trending upward. But it also tends to deliver stable returns in more volatile times.

Lam Soon's financial position has also been relatively solid in recent years, with the company operating essentially with zero debt. It had HK$2.06 billion in cash at the end of June, underpinning its ability to keep paying high dividends with yields around 4% in recent years.

One of the stock’s biggest drawbacks is its extremely low trading volume, making it less suitable for short-term investors. Another Achilles heel is its susceptibility to fluctuating prices for raw materials like wheat, peanuts, and palm oil used to make its products, as well as petrochemicals used to make detergents.

Family feud

Lam Soon was founded in Singapore in the 1930s by Ng Keng Soon, initially trading in edible oil, rice and copra. It launched one of its key products, Knife cooking oil, in 1948. Following Ng Keng Soon's death in 1955, the business was inherited by his two sons, Whang Tar Choung and Whang Tar Liang. The company expanded into Hong Kong in 1961, introduced Axe in 1969, and acquired Hong Kong Flour Mills in 1987.

In the 1990s, Lam Soon was managed by Whang Tar Choung's son-in-law, Raymond Chien. Chien, often referred to as the “king of public service,” who once served as a member of Hong Kong’s Executive Council, attempted to transform Lam Soon from a traditional food and oil enterprise by expanding into high-tech fields such as telecommunications and the internet. He also relocated the company’s production lines from Hong Kong to Mainland China, a migration that lowered production costs but also required massive spending that came back to haunt the company when banks tightened credit during the Asian Financial Crisis of 1997.

Making matters worse, a feud broke about between the two Whang brothers, who took some of their disputes to court. At that time, Quek Leng Chan, chairman of Malaysia's Hong Leong Group, recognized the value of the company’s core brands and seized on the Whang family discord to launch a takeover bid in 1997. He accumulated enough Lam Soon shares in the market to make him the majority shareholder.

Following that takeover, Lam Soon returned to its core business. The dispute between the brothers was finally settled in 2000, but by then they had already been reduced to minority shareholders.

Privatizing peers

Other edible oil companies have listed in Hong Kong over the years, but many have recently privatized and delisted after failing to attract much investor interest. Lam Soon's main competitor, Hop Hing Group, producer of Lion & Globe cooking oil, privatized in 2022, and China Agri-Industries Holdings, a subsidiary of foodstuffs giant Cofco, was also privatized in 2020. Well-known corn oil producer Changshouhua Food was similarly privatized and delisted in 2020. That shows that edible oil stocks have fallen out of favor with investors, resulting in sluggish share prices and thin trading volumes.

Arowana (300999.SZ), a leading Shenzhen-listed edible oil company, currently trades at a price-to-earnings (P/E) ratio of 47 times and a price-to-book (P/B) ratio of 1.56 times. Lam Soon is smaller in scale, with far lower P/E and P/B ratios of 9 times and 0.85 times, respectively. Its market capitalization is also relatively low at HK$2.68 billion.

Quek Leng Chan's family currently holds about 61.2% of Lam Soon's shares, while the Whang family's Whang Sun Tze and related parties hold 11.28%. The company’s resulting low free float, coupled with its sluggish trading volume and depressed valuation, could indeed make it an easy privatization target if the Quek Leng Chan family decides that Lam Soon is better off out of the public eye.

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With 20 brands in 33 countries, the Philippine fast-food operator has abandoned earlier plans to list its international operation in New York in favor of its nearby neighbor

Key Takeaways:

• Jollibee calls Hong Kong “a natural market” for listing its international operation, reversing its previous commitment to a U.S. IPO
• The Hong Kong Stock Exchange’s recent reforms and access to Mainland Chinese investors helped to seal the deal

By Edith Terry

A regional fast-food giant unfamiliar to many is creating a buzz around its new plan to give Hong Kong investors a taste of its international operation. 

When Jollibee Foods Corp. (JFC.PS) first announced its plans to separately list its international operation early this year, it said it was headed for Wall Street. But nine months later, the Philippine giant has reversed direction to declare the listing, which accounts for about 40% of its revenue, will be on the Hong Kong Stock Exchange, according to a filing last week with its home stock exchange in the Philippines.

The spinoff and separate listing would give global investors a taste of what’s arguably one of Asia’s most successful regional fast-food operators, with 20 brands in 33 countries. Its footprint of around 10,700 stores under various brands is one of the region’s largest. But that network has also shown signs of stumbling lately following Jolibee’s series of more than $1 billion in acquisitions over the last two decades.

The announcement described Hong Kong as “a natural market” for listing the global operation, to be called Jollibee Food Corp. International (JFCI), given the depth of the company’s presence and brand recognition across Asia. Jollibee added that Hong Kong as a listing venue is “best suited to JFCI’s business, geographic footprint, and investment profile.”

Jollibee has a current market cap of about $2.85 billion, meaning its international operation could be worth about 40% of that, or about $1.14 billion. By comparison, Yum China (YUMC.US; 9987.HK), which operates the KFC and Pizza Hut brands in China and has nearly 20,000 stores, is currently worth a much larger $14.5 billion.

Jollibee’s current shareholders have waxed hot and cold over the spinoff plan. The stock rose sharply on Jan. 6, at the time of the original announcement, only to later give back all the gains and more. Under the listing plan, the company’s current shareholders will receive shares in JFCI in proportion to their current holdings, with Jollibee Foods Corp. continuing to trade on the Philippine Stock Exchange.

Growing appeal of Hong Kong

Jollibee is one of a growing number of companies choosing Hong Kong for their listings over more traditional destinations like the U.S., as the city has taken a steady series of steps in recent year to become more company friendly. Among its latest steps, the exchange introduced a confidential filing system in July, as an alternative to the mandatory system of making all filings for new listings public. Since then, it has also temporarily waived its rule requiring companies to complete their IPOs within six months of making their first filings.

Those efforts are bearing fruit in attracting companies from around the region. Thai coconut water brand IFBH chose to list in Hong Kong in June 2025, abandoning earlier plans to list in Singapore. It has been joined this year by other Southeast Asian listings, including PT Merdeka Gold Resources Tbk, and BBSB International, a Malaysian construction company.

Jollibee hasn’t given a timetable for its Hong Kong listing, though it doesn’t seem to be in any hurry. One reason for that could be related to the company’s recent inner workings, which have all the markings of a typical family business. Jollibee founder and Chairman Tony Tan Caktiong, 73, runs the company with brother, Ernesto Tanmantiong, its president and CEO. Another brother, William Tan Untiong, is company secretary. Their sister’s husband, Antonio Chua Poe Eng, is also a director.

Just last year, Tony’s 45-year-old son, Carl Brian Tancaktiong, came back from a disappointing stint as chairman of Jollibee’s China operation, which has been struggling. He may need more time to work with the company’s relatively new CFO, Richard Chong Woo Shin, who has been tapped to run the international unit.

Shin, a Canadian, joined the company in 2022 after financial roles with a range of consumer brands, including aquaculture company Grobest, whiskey distiller Willam Grant & Sons, Ralph Lauren Asia Pacific and Bacardi Martini Asia Pacific.

Expansion through M&A

Jollibee may also be re-examining the speed of its rapid regional expansion, much of it through M&A. The company has closed 27 cross-border deals worth around $1.1 billion since 2000, including U.S. brands such as Denver-based Smashburger and Coffee Bean and Tea Leaf, as well as South Korea’s Compose Coffee, according to Bloomberg.

The spinoff will give investors a sharper picture of how all of these pieces in Jollibee’s offshore empire are doing. But the macro signs suggest there’s some overheating. Jollibee’s global revenue in 2025 was 305.1 billion Philippine pesos ($4.8 billion), up 13% over 2024, while its net income of nearly 11 billion pesos was flat. Its net income margin fell by 0.4 percentage points, from 4% in 2024 to 3.6% in 2025. The revenue growth continued this year, rising 9.9% in the first half to 162 billion pesos, even as its profit slipped into contraction with a 16.7% decline to 4.9 billion pesos.

As its net income declined, Jollibee reduced an earlier target for new stores additions in 2026. It now aims to open 1,000 to 1,100 new stores during the year, down from original plans for 1,200 and 1,300. It closed 207 stores in the first six months of 2026, and also cut its target for operating income growth to between 10% and 15%, down from an original 15% to 18%.

International analysts tend to attribute Jollibee’s success partly to its ability to tap the Philippine diaspora. But its real achievement outside its home market is its ability to cater to local tastes by adapting its signature Jollibee brand, as well as its other 19 brands, to each local market.

Jollibee was founded in 1975 by Tony Tan and his wife, Grace, who had both just graduated from the University of Santo Tomas with degrees in engineering. In their early 20s, they bought a Quezon City franchise operation of Magnolia Ice Cream, owned by Philippine conglomerate San Miguel Corp., for $7,000. Three years later, they dropped the Magnolia franchise and began selling “Yum Burger” hamburgers, before adding other options like fried chicken and spaghetti.

They won big in their home market. In 2024 the Jollibee brand controlled over 50% of the fast-food market in the Philippines, according to third-party research. But it also operates other brands as varied as Burger King, Panda Express and Tiong Bahru Coffee in the Philippines. By 2025, the company had 1,341 outlets in its home market under the Jollibee brand, ahead of 851 for McDonald’s (MCD.US) and 430 for KFC.

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“There’s been a very definite trend of what I would call re-transferring part of the economy from the private sector to the state sector.” — on Beijing’s regulatory retreat from private consumer finance back toward state dominance

By Rene Vanguestaine and Doug Young

Two vastly different segments of Chinese business are facing deep regulatory skepticism this month, one abroad and the other at home. Fast-fashion phenomenon Shein (0625.HK) has found its planned purchase of U.S. clothing label Everlane getting snagged in an improbable national security review in Washington. Meantime, China’s remaining cohort of private fintech lenders is getting plunged deeper into crisis following a multibillion-dollar fraud case. Together, these developments highlight how swift political tides can unravel business models on both sides of the Pacific.

Things have never been smooth for Shein outside its core fast-fashion business. The apparel powerhouse long served as a lightning rod for criticism over questionable labor practices, environmental complaints, and its aggressive use of customs loopholes to dodge U.S. and European import tariffs — concerns that scuttled its initial plans for a U.S. IPO roughly three years ago.

Now, Shein’s $80 million bid to acquire Everlane is undergoing scrutiny by U.S. national security regulators. The deal raised eyebrows from the moment it was announced, given that Everlane built its brand identity on corporate responsibility, environmental sustainability and ethical supply chains. Yet it’s nearly impossible to argue that Shein’s acquisition of an activewear and basic apparel brand threatens U.S. national security.

Instead, the pushback looks to have originated from within. When businesses lean heavily into environmental and worker protections, their workforces tend to care deeply about those standards. There are plenty of documented cases where corporate staff revolted against leadership — perhaps most famously when employees at Google rebelled against management over contracts with the U.S. Department of Defense. We think it’s likely that Everlane employees, alarmed by Shein’s labor and environmental record, agitated and persuaded unions or sympathetic regulators to intervene.

Beyond internal discontent, this review is another pawn in an escalating tit-for-tat between Washington and Beijing over cross-border deals. We don’t necessarily view this as the start of a trend, but it’s bound to ratchet up tensions. While national security remains a valid hurdle in advanced technology, regulators increasingly cite it as cover for economic protectionism and job defense. We’re observing similar resistance across Europe: France has long resisted foreign acquisitions, while Germany has steadily hardened its stance over the past two years, exacerbated by Beijing’s perceived diplomatic support for Russia in Ukraine.

A grim reckoning for China’s fintech pioneers

Meanwhile back in China, an entire private industry is falling apart. China’s private online lenders were once high-flying market darlings, but their latest quarterly reports look outright scary, marked by steep declines in top-line revenue and cratering profits.

Investor sentiment soured further after CreditEase (YRD.US) suspended principal and interest payments on $4.4 billion worth of wealth management products in May in a suspected fraud case. Although wealth management operated alongside consumer credit, an alleged fraud of that scale is staggering, and it seems to have triggered fresh regulatory crackdowns on China’s beleaguered fintech lenders.

This clampdown reflects a broader, decade-long reassertion of state control over the Chinese economy. While policymakers in Beijing acknowledge they need private enterprise to foster development of advanced technology, they’ve increasingly decided they don’t need private players in retail finance. The lending sector has shrunk from roughly 4,000 active platforms during its peak between 2017 and 2019 to fewer than 100 today.

These platforms originally boomed because state-owned banks preferred safe, guaranteed returns lending to state-owned enterprises rather than doing the hard work of assessing consumer credit risk. But as private platforms flourished — charging all-in fees and borrowing costs that frequently topped 30% to 35% — state banks pushed back. State lenders resented that private fintech upstarts operated without mandatory capital reserve cushions and grew envious of their immense profits.

Regulators stepped in, repeatedly lowering caps on permissible interest rates and service charges. A further tightening late last year and earlier this year made it nearly impossible for these companies to turn a meaningful profit. Compounding their misery, China’s sluggish consumer economy has prompted shoppers to curtail spending and rein in debt. We think investors should stay away from these names. While a tiny handful might survive, picking the rare survivor from this wreckage is a risk not worth taking.

The new energy vehicle maker has recorded adjusted profits in the last three quarters, yet its stock now trades near a 52-week low

Key Takeaways:

• Nio reported an adjusted profit in the second quarter, as its net loss also narrowed significantly
• The new energy vehicle maker’s adjusted profit and gross margin both fell sequentially in the second quarter from the first

By Cheng Shui Tong

The uphill slog continues for electric vehicle (EV) maker Nio Inc. (9866.HK; NIO.US), as it stays locked in a race for survival with dozens of Chinese rivals. That said, the company’s second-quarter results, released last week, show it continues to stay near the front of the pack in that race.

Nio reported its net loss narrowed by 86% in the latest three-month period to 722 million yuan ($108 million) from 5.14 billion yuan a year earlier. It was profitable on a non-GAAP basis, reporting an adjusted profit of 24.8 million yuan for the period, reversing a 4.13 billion yuan loss a year earlier. Significantly, the latest figure marked Nio’s third consecutive quarter of adjusted net profits.

Its second-quarter revenue also rose by a healthy 69% year-over-year to 32.1 billion yuan, while its gross margin reached 18.4%, up 8.4 percentage points from a year ago. While those figures marked a substantial improvement year-on-year, they represented some backsliding from the first quarter. Specifically, Nio’s second quarter adjusted profit was down 44% sequentially, while its gross margin fell by 0.6 percentage points over that time. That may partly explain why Nio's U.S. stock fell after the announcement, dropping below the $4 mark to trade near a 52-week low.

Turnaround story

Nio’s stock has been through ups-and-downs since it listed on the New York Stock Exchange in 2018. It hit an all-time low of about $1.20 the next year, but then staged a massive rebound just a year later to reach an all-time high over $62 in February 2021.

Like many of its peers, Nio has consistently lost money. Despite that, the stock initially soared after the company made a remarkable turnaround from a near collapse in late 2019, when founder William Li was dubbed the “most miserable man” of that year. But then the company got a massive 7 billion yuan lifeline from funds tied to the city of Heifei, capital of Anhui province where it has close ties, in April 2020. Nio clawed its way back from there, banking on its premium market positioning and flagship battery-swapping technology. As that happened, its total deliveries rose to more than 43,000 vehicles in 2020, more than double the previous year's figure.

Assisting Nio’s case, shares of the global EV leader Tesla (TSLA.US) started to soar at that time. That helped to light a fire under Nio’s stock, as Wall Street investors increasingly viewed the company as the “Tesla of China.”

Six years later, Nio has achieved an operating profit, with annual new car deliveries exceeding 400,000 units — a nearly tenfold increase from those earlier days. So why is its stock hovering near a 52-week low, sitting at less than 10% of its peak? Market enthusiasm was strong in the earlier days, as investors applauded the company for its near-death survival, multiplying sales, and favorable policy tailwinds in its home China market. Many investors were also optimistic that EVs would disrupt the entire auto industry, awarding Nio a hefty premium as a leader in the field.

Fast forward to the present, when those lofty expectations have evaporated. While EV penetration rates have climbed significantly, so have the number of companies entering the market, igniting cutthroat competition and brutal price wars. Making matters worse is the gradual phase-out of national subsidies for new energy vehicles (NEVs) in China, the world’s largest market for such cars. That confluence of factors has slammed the brakes on most companies’ formerly sky-high valuations, sending their shares into a tailspin.

Entering the decisive phase

Speaking at a recent forum, Nio Chairman William Li pointed out that China's auto industry is entering its most brutal and decisive phase — a critical juncture that will determine who survives over the next three to five years. He noted the significance of branding is rising as products become increasingly undifferentiated, even as carmakers are forced to keep spending heavily on R&D and upgrades to their technology and service networks to stay apace with the field.

That raises the question of whether Nio will emerge as a survivor in this Chinese auto race. Despite its low stock price, there are also reasons for optimism. For one, Nio's strong performance in the premium segment has bolstered customer loyalty, leaving room for price hikes. The Nio brand has maintained its lead in the domestic high-end market, winning the company an average transaction price of 400,000 yuan in the second quarter. That climbed further to 430,000 yuan in July, surpassing figures for Mercedes-Benz, BMW, and Audi, ranking Nio first among mainstream luxury brands.

Nio’s battery-swapping model, cultivated over the years, has also given the company an advantage, making its products harder to substitute. Unlike traditional EVs that rely on charging stations, Nio's fully automated process allows drivers to complete a battery swap in just three minutes without leaving their vehicles — more efficient than standard fast-charging. Around 60% of Nio owners currently utilize that service. That approach also facilitates the decoupling of vehicles and batteries. Buyers can purchase cars without batteries, saving tens of thousands of yuan upfront. They then pay monthly subscription fees instead, with Nio responsible for battery maintenance.

This not only improves efficiency for car owners but also deepens their reliance on the brand and positions Nio as a leader in battery-swapping infrastructure.

Major banks lower target prices

Nio may look competitive over the longer term, but its second-quarter performance fell broadly short of expectations, prompting major banks to slash their price targets, further pressuring the stock. Bank of America zeroed in on Nio's second-quarter gross margin contraction on a sequential basis, even though it improved year-over-year. It also noted that Nio’s operating expenses accounted for 19.5% of sales, slightly higher than anticipated. As a result, BofA lowered its target price for Nio's Hong Kong-listed shares from HK$47 to HK$40 and maintained a “neutral” rating.

At the same time, cost pressures for manufacturers are impossible to ignore. Nio's management indicated that the average cost per vehicle in the second quarter rose by approximately 14,000 yuan compared with the fourth quarter of last year. They projected a further increase of 2,000 yuan to 3,000 yuan in the second half of the year, which could put further pressure on the company’s gross margin.

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The struggling marine theme park operator’s revenue slid in the first half of the year and its loss widened, as its massive debt load continued to swell

Key Takeaways:

• Haichang Ocean Park reported its revenue tumbled over 20% year-over-year in the first half of 2026
• The marine theme park operator’s short- and long-term interest-bearing debt neared 5.5 billion yuan at the end of June

By Lau Chi Hang

Some might say it’s desperately treading water in a race against time.

Marine theme park operator Haichang Ocean Park Holdings Ltd. (2255.HK) has weathered quite the storm these last few years. Beyond its steadily deteriorating financials and frequent ownership shake-ups, its core business continues to erode. The company’s latest financial scorecard, released last week, contains more of the same, painting a bleak picture of sinking revenues, ballooning losses, and stubbornly high debt.

Haichang booked revenue of 536 million yuan ($80 million) in the first half of this year, down 22% year-over-year. Its net loss for the period grew by 12.7% to 332 million yuan from 295 million yuan a year earlier.

The company’s core theme park operations remained dismal, with ticket sales down 17% year-over-year to 265 million yuan. Food and beverage sales retreated 12.3% to 60.11 million yuan, while merchandise sales plunged an alarming 50% to 39.58 million yuan.

Despite the falling revenue, the company’s selling and marketing expenses surged 47% year-over-year to 75.35 million yuan. And even as Haichang scrambled to slash costs across the board, its gross profit margin for the period shrank by half to just 5%, down 5.4 percentage points from the prior year.

Gearing ratio soars

Beneath its sinking parks, Haicheng’s debt is its most glaring red flag. Its net gearing ratio jumped to 209.9% by the end of June from an already-high 171% just six months earlier. Its short- and long-term interest-bearing bank and other borrowings totaled 5.45 billion yuan midway through this year. And while its interest-bearing debt due for repayment this year fell by 25% from six months earlier, the overall figure still sits at a high 1.28 billion yuan. Compounding its pressure, the company’s cash and cash equivalents dwindled to just 460 million yuan by the middle of this year, down by more than half from 1.06 billion yuan at the end of last year.

Adding to its woes, and in a sign of its growing distress, Haichang was accused of missing payments from some of its suppliers in the first half of the year. As a result, several of its bank accounts with 24.13 million yuan were frozen, forcing Haichang to make full provisions for the sum.

Yet, despite being cash-strapped and buried under heavy debt, the company’s capital  commitments showed no signs of easing. It spent 330 million yuan in that regard during the latest six-month period, nearly matching its capital commitments for all of last year.

Many may be scratching their heads at the company’s growing woes. China's tourism industry has rebounded sharply post-pandemic, with domestic travel still strong as Beijing heavily backs the cultural tourism sector. Reflecting that, domestic tourist trips reached 1.9 billion in the first quarter of 2026, up by 107 million year-over-year, according to the Ministry of Culture and Tourism. Given such strong industry fundamentals, why has Haichang faced such difficulty?

Cultural tourism real estate stumbles

Haichang's founder Qu Naijie started out in oil trading and maritime transport in his early years. He established his Haichang Group in the 1990s, and, in 2001, began operating theme parks in the Northeastern city of Dalian. As the business grew and more Chinese began traveling for leisure, the company rolled out theme parks across the country. It had 10 locations at its peak, including parks in Shanghai, Zhengzhou, Sanya and Chongqing.

Qu Naijie's template was straightforward: leverage the promise of economic benefits from theme parks to acquire land at low prices from local governments. The ability of well-planned parks to stimulate regional tourism and elevate a city's profile led governments to make the types of concessions Qu was seeking.

As that happened, he snapped up cheap land surrounding the parks to build sprawling residential developments, seeking to capitalize on China’s soaring property market at that time. A portion of the profits from property sales would then be funneled back into theme park operation and construction. In essence, Haichang was really as much a property developer as a theme park operator.

But all that came to an end in 2020 when the government cracked down on easy credit for property developers, causing the real estate market to nosedive. Despite its theme park credentials, Haichang wasn’t spared, as it was forced to record impairment losses on its investment properties.

It’s also worth noting that marine theme park operation is quite cash intensive. Rearing marine life requires large amounts of food, stringent water quality management, and dedicated professional care, all of which come with hefty price tags. Deprived of real estate revenue and profits, the parks have struggled to stay afloat by purely relying on ticket sales and in-park consumption.

When it rains, it pours

In 2024, Qu Naijie found himself in even deeper water. Found guilty in court of misusing government subsidies to purchase vineyards in France, his assets were seized and he was fined by a French court. Crushed under all that pressure, Qu went in search of a white knight. Last October, he raised nearly HK$2.3 billion ($293 million) for his company by selling shares to Sunriver Holding, which got a controlling 38.6% of Haichang in exchange.

But that wasn’t the end of the story. Sunriver chief Yu Faxiang was subsequently subjected to criminal measures on suspicion of illegal “self-financing.” With Yu out of the picture, hopes of a rescue vanished, sending Haichang back to the drawing board to search for a new white knight.

In July this year, Haichang announced that Qu Naijie’s son, Qu Cheng, sold 1.2 billion Haichang shares, or about 9.08% of the company, to Mei Zhiming for HK$360 million. At the same time, Sunriver offloaded 1.68 billion of its Haichang shares to Mei Zhiming for another HK$754 million, representing 12.67% of Haichang’s total shares. The series of moves made Mei Zhiming Haichang's second-largest shareholder with a 21.75% of the company. Qu Cheng's holdings dropped to 19.13%, while Sunriver retained its controlling position with a 25.92% stake.

So, who exactly is Mei Zhiming? As it turns out, he brings serious credentials to the table. He is a co-founder of investment manager GLP, which oversees more than $80 billion in global assets. But investors were most impressed by Mei’s track record: he once engineered a rescue for Hong Kong’s Li & Fung Ltd., a local trading giant, and spearheaded the restructuring of Bicester Village Suzhou, ultimately transforming the latter into a cultural and tourism landmark in the Yangtze River Delta.

Haichang shares ticked up after the announcement about Mei Zhiming in late July, but have given back those gains and more since then. Now the billion-dollar question is whether Mei can work his financial wizardry with Haichang to bring it back from the brink.

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The company’s revenue rose 33% in the second quarter, as aesthetic treatment services from its growing chain of self-operated clinics jumped 130%

Key Takeaways:

• So-Young’s revenue rose 33% in the second quarter, as its chain of cosmetic treatment clinics recorded triple-digit growth
• The company’s clinic network more than doubled year-on-year to 65 facilities at the end of June, as gross margin for that business improved by 3.8 percentage points

By Doug Young

Cosmetic treatment provider So-Young International Inc. (SY.US) is quickly proving the old business truth that there’s beauty in economies of scale. The company wowed investors this week with a 10^th straight quarter of triple-digit growth for the self-operated aesthetic treatment services that have become its core business since the pandemic.

On top of that, it also showed notably improving gross margins for the aesthetic treatment services, which it provides through its fast-growing network of self-branded centers. That network reached 65 centers by the end of June, up by 11 from three months earlier and more than double the 29 it had a year ago.

The centers are also showing a remarkable ability to achieve profitability very quickly. Of the 65 centers, 47 were profitable in the second quarter, while 51 achieved positive operating cash flow. So-Young is also leveraging those centers to sell cosmetic products to its customers through a partnership with a major manufacturer.

If there’s one small cloud in the company’s latest earnings report, released on Monday, it was So-Young’s forecast that its triple-digit revenue growth streak for the aesthetic treatment services business will come to an end in the current quarter. The company forecast that business would generate between 352 million yuan ($52.4 million) and 362 million yuan in the three months through September, which would be up 91.7% to 97.2%. But if there’s any downside to achieving economies of scale, it’s that growth rates inevitably slow as a company gets bigger, so we can’t fault So-Young too much on its inability to maintain triple-digit growth.

Investors didn’t seem to mind the imminent end of that streak either, with So-Young’s stock rising 21.3% the day of the results announcement.

So-Young’s stock was one of a small group we called “Chinese Easter eggs” last year, as investors suddenly took interest in their shares after years of neglect. So-Young’s was one of the best performers, as its shares rose sevenfold in the space of just a few weeks. But unlike most of those companies, whose shares later fell back to earth, So-Youngs’ stock has managed to retain some of its gains. The shares are still about triple from where they were before the rally that began in June last year, indicating genuine investor interest in the company’s ongoing transformation.

So-Young started out operating an online community for people interested in cosmetic surgery, earning most of its money from referral services from third-party clinic operators and product sellers. That business is extremely high margin, as its asset-light nature requires very little capital investment.

But So-Young also discovered the business comes with a big downside, namely, quality control. Quality varied widely among the many third-party clinic operators on the platform, exposing So-Young to reputational risk, as well as loss of customers when China embarked on periodic crackdowns on subpar clinics and product sellers.  

The company discovered quality is much easier to control, and business is far more stable, when it operates its own clinics. It opened its first self-operated clinic at its headquarters in Beijing in August 2023, and has rapidly expanded the concept since then.

Eroding margins

The biggest downside to the new business model is profit margins, which dropped rapidly due to the far higher costs of building and operating clinics compared with merely providing referral services. So-Young’s gross margin has fallen steadily over the last three years, dropping from 63.6% in 2023 to just 47.9% last year.

Officials said the company’s gross margin for aesthetic treatment services stood at just 28.1% in the second quarter, well below its overall gross margin of 44.1% for the quarter. But it also pointed out the latest treatment services gross margin improved by 3.8 percentage points from a year earlier, showing the treatment center business is becoming more profitable as it gains scale.

Most of the company’s major metrics reflect that improving efficiency that comes with growing scale. So-Young’s overall revenue rose 33.4% year-on-year to 505.2 million yuan in the second quarter from 378.7 million yuan a year earlier. But aesthetic treatment services grew by a far faster 129.5% year-on-year to 331.4 million yuan, expanding to two-thirds of total revenue from 38% a year earlier.

Revenue from its older information and reservation services fell 35% to 87.9 million yuan from 135.2 million yuan a year earlier, while sales of medical products and maintenance services fell 2.8% year-on-year to 73.9 million yuan.

Most of the metrics for its aesthetic treatment services tell a similar story of rapid scaling. Verified treatment service visits to its branded centers during the quarter rose 145% year-on-year to 165,200, while active users of its centers in the 12 months through June rose 154% to more than 255,300 from the previous 12-month period.

Significantly, the company said that about half of the new business to its clinic network came from referrals, reflecting its growing ability to attract new clients without heavy costs. Reflecting that, its sales and marketing expenses rose just 16.8% year-on-year during the quarter to 153.5 million yuan, far slower than its revenue growth rate, dropping sales and marketing expenses to 30% of its overall revenues from 35% a year earlier.

The company is also using its clinics to cross-sell products to customers through a partnership with Jinbo Bio-Pharmaceutical. It disclosed that one product from the partnership, Miracle Collagen, has sold over 66,000 units since its launch in April, while another, WeaveCol, launched in June, helps “fill the eye and midface areas while promoting ongoing collagen regeneration for a natural look.”

The improving profitability metrics filtered down to So-Young’s bottom line, as its net loss narrowed to 22.7 million yuan from 36 million yuan a year earlier. “Looking ahead, we see a clear path toward profitability as our industry leadership solidifies and economies of scale continue to unfold," said CFO Shannon Shen.

The company hasn’t given specific targets for its new clinic openings for the next year, though it has said it will expand at a “measured pace,” while focusing on increased operational efficiency. That could be an important factor to watch, as overly aggressive expansion often undermines this type of brick-and-mortar service company if it starts to open outlets in less desirable locations simply to keep growing.

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Aux Electric blamed its 13% revenue decline in the first half of 2026 on the Iran war, yuan appreciation and rising copper costs

Key Takeaways:

• Aux reported its revenue fell 13% in the first half of 2026, while its profit tumbled by 41%, as it blamed weak demand in China and the Iran war
• The budget air conditioner maker’s exports to Europe fell by 33.1% in the six-month period, even as most of its peers recorded strong gains in the market

By Edith Terry

Just a year after its Hong Kong IPO, Aux Electric Co. Ltd. (2580.HK) is having a hard time selling investors on its ability to maintain its position in an overheated global air conditioner market.

The company, known for its budget models, announced last week its revenue slid 12.9% year-over-year to 17.5 billion yuan ($2.6 billion) in the first half of this year, while its profit tumbled 40.8% to 1.1 billion yuan. Its gross margin fell by more than a percentage point to 18.1% from 19.5% a year earlier as it suffered from higher material costs, especially for copper wire, according to its midyear report.

Investors blew cold on the company after the latest announcement, sending its shares down 6.2% over the next three trading days in Hong Kong. At its Wednesday close of HK$9.29, the stock now trades well below its offer price of HK$17.42 last September.

Like many of its domestic rivals, Aux has found big business outside its home market, selling to 160 countries. At the time of its IPO last year, its customers were mainly distributors and other brands that bought its products as original design manufacturing (ODM) customers. The company is trying to sell more of its own-branded products as well, which typically carry higher margins. Its brands include including its Aux namesake, targeted at the mass market, as well as its higher-end Hutssom, the Aufit youth brand, and a new premium brand called ShinFlow. 

Most of its first-half revenue decline came from the Middle East, which Aux includes in its Asian sales territory. Revenue from Asia, accounting for 28.1% of the company’s total, fell by 18.8% in the latest six-month period. One of its largest customers is in the United Arab Emirates (UAE), which sits across the Strait of Hormuz from Iran, an area that has been the focus of the Middle East war this year.

Aux’s revenue from Europe fell by an even steeper 33.1% in the first half, making up 8.5% of the total, while Mainland China and North America fell 4.1% and 2.1%, respectively. China is still Aux’s largest market, accounting for 50.7% of its total sales in the first half of the year, while North America accounted for 6.2%.

Surging exports

China exported $3.76 billion worth of air conditioners in the first half of this year, up 43.2% year-over-year, including a 72.8% rise for the month of June alone, according to Chinese customs data.

Aux’s weak first-half performance in Europe in notable because air conditioner sales soared in that market this year amid repeated heat waves. Rival Midea (0300.HK; 000333.SZ), said sales of its PortaSplit portable air conditioners designed for Europe tripled in the first half of this year, while Haier (6690.HK) also reported strong growth in Europe for its heating, ventilation and air conditioning (HVAC) segment. And Gree Electric (000651.SZ) reported sales for the half-year rose by 92% in Denmark, Finland, the Netherlands and Norway, even as its overall revenue slumped 8.2%.

The Chinese market has been problematic for all the manufacturers due to a prolonged property slump and weak consumer spending. Domestic air conditioner sales fell by 13.1% in the first half of this year to 122.1 billion yuan, according to AVC data estimates.  

Aux and its peers have also been hit by rising costs beyond their control. Among those, copper prices rose by 15% year-on-year in the first half, while container shipping rates surged 80% in June due to fallout from the Iran conflict. The company also took a hit from a rising yuan, which has eroded the value of its products sold overseas in other currencies.

Bullish founder

Aux founder Zheng Jianjiang, who named his company after his Chinese zodiac sign, the ox, isn’t one to give up easily in the face of such challenges. Now 65, Zheng got into manufacturing in 1987 when he purchased a failing, township-owned clock parts factory. He began producing air conditioners in 1994, and became known as the “price butcher” after slashing prices of 40 of his models by 30%, claiming that his rivals marked up prices far above production costs.

He has kept up his low-cost tradition by sacrificing his gross margin, which, at 18.1% in the first half of this year, was well behind Gree’s 31.7% gross margin for consumer appliances and Midea’s 27.9% for its smart home solutions. Zheng also spends less than his peers on product development, with R&D expenses at less than 2% of revenue compared to just under 4% for Gree, Midea and Haier.

While its non-branded ODM business represented 38.1% of revenues in the first half of the year, that share has been declining as Aux focuses on the more profitable branded business, which increased to nearly 60% of revenue from 55% a year ago. Its new ShinFlow brand will expand into “overseas premium experience stores and high-end property channels,” Aux said, as part of its effort to move beyond its traditional low-end focus to more premium products that typically carry higher margins.

Aux also plans to put greater focus on its central air-conditioning business, which generated 10% of revenue in the six months, or 1.75 billion yuan, up from 9% in 2025. That business carried a notably higher gross margin of 27.6% in the first half of the year, compared with just 15.4% for household air conditioners. But in value terms, revenue from central air conditioners decreased in the first half of 2026 from the previous year due to the impact of yuan appreciation on overseas revenue.

Most analysts expect Aux’s revenues to be flat this year, which implies a return to year-on-year revenue growth in the second half after the weak first-half performance. Huaxi Securities expects the company to report 30.6 billion yuan in revenue this year, roughly the same as its 30.1 billion yuan in 2025, gradually increasing to 34.5 billion yuan in 2028. It sees the company’s net profit increasing from 2.2 billion yuan in 2026 to 2.7 billion yuan in 2028.

Huaxi recently initiated coverage of Aux with an “overweight” rating, noting its price-to-earnings (P/E) ratio is comparable to its peers. Aux currently trades at a P/E ratio of 8.7 times, ahead of 7.8 for Gree and 9.3 for Haier, but well below Midea’s 14.6. But with a market cap of just HK$14.89 billion, the company is considerably smaller than those three listed peers, which are each worth 10 times that amount and more.

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The company swung to the black in the first half of the year by banking on rebounding cattle prices and lower costs, even as milk prices remained stuck in the doldrums

Key Takeaways:

• Modern Dairy turned a profit in the first half of 2026, though the average selling price for its raw milk still slipped 2.4%
• The company completed its acquisition of China Shengmu during the period, securing a scarce source of desert-based organic milk

By Lee Shih Ta

For upstream dairy companies, profitability is never dictated solely by the price of milk. A dairy cow is a production asset during its lactating years, but later enters the beef supply market once it’s culled. Consequently, prices for milk and culled cows, as well as feed costs and herd demographics, all tug at a company’s bottom line. That dynamic explains why dairy farming enterprises have already begun to swing back to the black this year even as milk prices remain stuck in the doldrums.

The latest midyear results from China Modern Dairy Holdings Ltd. (1117.HK), released last week, offer a perfect viewing window into this cyclical disconnect. The company’s revenue reached 6.59 billion yuan ($981 million) in the first half of the year, up 8.6% year-over-year. Even better, it pulled off a return to the black with a profit of 15.29 million yuan for the period, reversing a net loss of 913 million yuan a year earlier. Meanwhile, Modern Dairy’s net cash generated from operating activities surged 56.8% to 769 million yuan.

But the turnaround hardly owed to the company’s raw milk segment, as the average selling price for Modern Dairy’s core product during the latest six-month period slipped to 3.21 yuan per kilogram from 3.29 yuan, down 2.4% year-over-year. Actual raw milk revenue still logged a 6.5% gain to 5.4 billion yuan, but that was only because of an 8.9% jump in sales volume to 1.68 million tons.

Instead, the company’s reversal of fortune came from its cows themselves. During the first half, paper losses from the revaluation of dairy cow assets narrowed by more than half to 760 million yuan from 1.82 billion yuan in the same period last year — representing a reduction in losses of more than 1 billion yuan. That tracks closely with the company's roughly 1.03 billion yuan earnings swing during the period. Modern Dairy explained that it largely completed its strategic herd culling in the previous fiscal year. The combination of a lower culling volume this year and firmer prices for culled cows translated into a notably narrower loss in the fair value of its biological assets.

Cyclical disconnect

This is precisely where cattle and milk price cycles begin to diverge. When milk prices slump, dairy farms historically accelerated their elimination of low-yielding cows. But with the recent round of concentrated culling largely in the rearview mirror, Modern Dairy's own culling volume has dwindled. Helping matters, a domestic rebound in live cattle prices bolstered the value of its culled cows. Data from China’s Ministry of Agriculture and Rural Affairs shows the national average price for live cattle in July was 28.72 yuan per kilogram, up 6.13% year-over-year, while the average price for beef rose by a similar 5.65% to 73.71 yuan per kilogram. That contrasted sharply with languishing raw milk prices.

At the same time, pinning Modern Dairy's return to profitability entirely on accounting valuations wouldn’t be completely fair. While the company's herd size shrank by 2.5%, the proportion of milkable cows rose to 60.1% and the average annualized yield per cow increased to 13.3 tons, driving a 7.1% increase in total raw milk production to 1.78 million tons. Moreover, the company’s cost per kilogram of raw milk declined to 2.29 yuan from 2.32 yuan. In short, the company’s smaller herd is churning out more milk at a lower cost. Despite that, Modern Dairy’s gross margin for raw milk still retreated to 29.5% this year from 30.2% in the first half of 2025, thanks to weak milk prices.

Modern Dairy isn’t the only one benefitting from earlier herd downsizing. Industry peer Youran Dairy (9858.HK) swung to an 806 million yuan profit in the first half of 2026 from a 297 million yuan loss a year earlier, as its fair value loss on biological assets narrowed to 1.32 billion yuan from 2.23 billion yuan over that period. Similarly, AustAsia Group (2425.HK) reported a profit of 108 million yuan in the first half of this year, bouncing back from a 378 million yuan net loss a year earlier. This sector-wide rebound shows the nascent recovery for upstream milk producers is largely coming from lower costs and rebounding cattle prices, rather than a broad-based milk price recovery.

Waiting for a rebound

Notably, signals are pointing to a potential recovery in milk prices in the second half of the year. According to the Agriculture Ministry, the average price of raw milk in 10 major producing provinces edged up 1% year-over-year to 3.06 yuan per kilogram in the fourth week of July. By the end of July, China’s national dairy herd stood at 5.77 million heads, shrinking by 4,000 sequentially. As culling of the herd continues, the price spread between spot milk and contract milk is also narrowing.

During the latest six-month period, Modern Dairy also completed its acquisition of a majority 53.53% stake in China Shengmu Organic Milk (1432.HK), providing a scarce supplier for desert-based organic milk. Shengmu also achieved its own turnaround in the first half of this year, posting a profit of 64.01 million yuan. The financial consolidation and anticipated synergies between Modern Dairy and Shengmu are expected to materialize starting in the second half of the year.

However, expanding at the bottom of the milk cycle doesn’t come without a cost. Modern Dairy's bank borrowings grew to 12.93 billion yuan at the end of June from 10.58 billion yuan at the close of last year, pushing its financing costs up to 354 million yuan in the first half from 292 million yuan a year earlier. That means the burden of newly added assets and steeper borrowing costs could dial up pressure on Modern Dairy’s bottom line if milk prices fail to recover in line with expectations.

Modern Dairy's stock has rallied roughly 10% over the last month, which includes a positive profit alert before the official results announcement, as well as finalization of the Shengmu acquisition. The stock gave up some ground in the two trading sessions after the official earnings release, likely reflecting profit-taking as the good news was already priced in.

On the valuation front, Modern Dairy trades at a price-to-sales (P/S) ratio of about 0.79 times, eclipsing Youran Dairy's 0.65 times and AustAsia's 0.3 times. That premium suggests that some recovery expectations are already included in Modern Dairy’s share price. Moving forward, the next catalysts that could lift the stock will include milk prices, specifically whether they can mount a comeback, and whether raw milk gross margins can expand. Investors will also be watching to see if the Shengmu acquisition can lift Modern Dairy’s overall profitability and asset returns.

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The operator of the Domino’s Pizza chain in China reported 20.8% revenue growth in the first half of the year, driven by rapid store expansion and rising transaction volumes

Key Takeaways:

• DPC Dash’s revenue rose 20.8% in the first half of 2026 to 3.13 billion yuan, as it opened 235 new Domino’s Pizza stores, bringing its total to 1,550
• Strong transaction growth, new-market demand and a growing national supply-chain network are supporting DPC’s continued expansion across China

By Doug Young

Call it pizza growth with Chinese characteristics.

That was the story in the first half of 2026 for DPC Dash Ltd. (1405.HK), operator of the Domino’s Pizza (DPZ.US) chain in Mainland China, Hong Kong and Macau. The company continued its rapid expansion into new markets during the period, while rising transaction volumes and improving group-level efficiency helped it deliver strong revenue and profit growth.

DPC’s store-opening campaign also got a major new boost in July, when it signed a new deal with one of China’s leading shopping mall operators. At the same time, its expanding supply-chain network is laying the groundwork for continued national growth. Its growth story also comes with a twist, as its recent big delivery gains have come on the back of work with third-party food delivery apps.

On Aug. 31, DPC Dash also announced the grant of 3.42 million share options to 15 employees and 1.02 million share awards to another 58. Notably, the share awards will be satisfied by purchasing existing shares in the open market, rather through than new share issuance, avoiding dilution. The options vest over four years and carry a HK$35.64 strike price, above the HK$33.30 grant-day close, providing a longer-term alignment between employee incentives and shareholder returns.

DPC began collaborating with Domino’s as early as 2010 and became the U.S. company’s master franchisee for Mainland China, Hong Kong and Macau seven years later. By comparison, leading Western rival Pizza Hut has been in China since 1990 and is currently the market leader with about 4,500 stores.

Despite its later arrival, DPC has been narrowing the gap through rapid expansion in recent years, largely by moving into smaller markets, which it calls non-tier 1 cities, where pizza is still considered a novelty by many consumers. It added 235 net outlets in the first half of 2026, bringing its total to 1,550 stores across 75 mainland Chinese cities. About two-thirds of its stores are now in non-tier 1 cities.

The company also entered 15 new cities during the first half. As of Aug. 14, it had opened another 27 stores and had 74 more under construction, signed or approved, meaning 96% of its full-year opening target was secured.

Tough market

China’s restaurant market, while huge, hasn’t been easy for anyone these last few years. China’s catering industry revenue rose 4.2% in the first quarter of this year to 1.46 trillion yuan ($217 billion), according to government statistics. But growth has been slower for larger operators like DPC, and the market has also been marred by constant cost cutting as companies cater to increasingly cautious consumers in a slowing economy.

Adding to that volatile mix, a subsidy-fueled price war among Alibaba, JD.com and Meituan’s food-delivery platforms pressured restaurant pricing and shifted some consumers from Domino’s own app to third-party channels. As a result, DPC’s delivery business increased by 8.6 percentage points to 51.7% of its total revenue in the first half of this year, mostly fueled by the third-party apps, with DPC reporting that sales over those channels rose 81% in the first half to make up 39.4% of its sales. By comparison, sales over its own channels fell 11.8% to account for 12.3% of total sales.

All those factors combined to produce strong growth in revenue, profits and transaction volumes, as consumers flocked to DPC’s online and offline channels to try out newly opened stores and take advantage of promotions. The company’s revenue rose 20.8% year-on-year in the latest six-month period to 3.13 billion yuan from 2.59 billion yuan a year earlier. Its overall transaction volume soared 33.7% during the period, as same-store transactions grew 7.1% year-on-year, marking a 22nd consecutive quarter of growth for that metric.

But the constant price pressure caused the company’s average transaction price to drop to 72.9 yuan from 80.7 yuan in the first half of 2025. That was a major factor behind a 4.8% same-store sales decline in the first half of the year. In a small positive sign, the company said same-store sales returned to slightly positive territory in May and June after a series of sales initiatives. The improvement is also probably coming from an easing in the takeout delivery wars as the three big platforms try to curb their own losses.

DPC also improved its performance with greater efficiencies that lowered its group-level expenses to 7.5% of revenue in the first half of this year from 8.1% a year earlier. Some of that is coming from its national network of supply chain centers (SCCs), which added the fourth one in August in the Central city of Wuhan to complement existing centers in Beijing, Shanghai and Dongguan. The Wuhan SCC can support more than 200 stores.

DPC said it has secured sites for two more SCCs in Chengdu and Nanjing, with operations set to begin in the second half of 2027. The expanded network should improve logistics efficiency and cost control as the company broadens its store base nationwide.

The company’s improved transaction volume and greater efficiency, despite the price pressures, helped to boost DPC’s net profit by 22.9% year-on-year in the first half to about 81 million yuan. Its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 8.6% to 351 million yuan, while its adjusted net profit rose 7.4% to 98.2 million yuan.

Another recent highlight was a new partnership announced in July with SCPG, one of China’s leading shopping mall operators. That tie-up could give DPC preferred access to SCPG’s more than 220 properties across 55 Chinese cities, providing some new lift for its ongoing expansion. DPC said it has already reached agreements with SCPG regarding locations in second-tier cities such as Zhengzhou, Chongqing and Guiyang.

The company continues to focus on such non-Tier 1 cities, where the novelty factor often leads to huge business when new stores open. That’s helped DPC stores grab all top 70 positions for best first 30-day sales in Domino’s worldwide rankings. One of the latest additions came from the company’s first store in the Northern city of Harbin, which broke Domino’s global record for single-store, single-day sales by raking in over 700,000 yuan on its opening day.

But such huge crowds are also a double-edged sword, as they ultimately fade as the novelty factor wears off and business normalizes. That adds some short-term pressure.

With China still relatively under-penetrated in pizza restaurants and DPC operating just 1.1 stores per million people nationwide, the company sees considerable room to grow in both new and existing cities. Its faster expansion, strong new-store performance and strengthening supply-chain base position it to keep pursuing that opportunity.

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The fitness company’s online paid revenue plummeted in the first half of this year, as it increasingly relies on growing sales of branded fitness products

Key Takeaways:

• Keep Inc.’s revenue grew slightly in the first half of the year, as its loss narrowed by two-thirds
• The fitness company’s fledgling AI concepts have yet to make a significant contribution to its business

By Cheng Shui Tong

It’s renowned among Chinese fitness buffs. But the latest financial report from fitness platform Keep Inc. (3650.HK) hardly portrayed a company at the peak of health.

Keep reported revenue of 825 million yuan ($124 million) for the first half of 2026, essentially flatlining from the year-ago period with just a 0.4% rise. Its bottom line was slightly more inspired, as its net loss of 12.19 million yuan represented a big improvement from its loss of 35.43 million yuan a year earlier.

Despite the bottom-line improvement, the reality is that Keep has been losing money for years. It posted a 223 million yuan loss in 2023, the year of its Hong Kong listing, and the figure more than doubled to 469 million yuan in 2024, before receding to 72 million yuan last year. Things look better after excluding non-cash expenses like share-based compensation and changes in the fair value of investments. On that basis, Keep recorded an adjusted profit of 25.22 million yuan last year, and 5.88 million yuan in the first half of 2026.

Weight-loss godfather

Its slowly improving metrics have done little to draw investors to Keep’s stock. The shares currently trade near a historic low around HK$1.70, marking a massive discount of nearly 94% compared to headier times when the company sold IPO shares for HK$28.92 in 2023. The company was riding high at that time, boosted by a post-pandemic fitness boom. Its millennial founder, Wang Ning, is also local legend for his own weight-loss story.

Born in 1990, Wang attended the Beijing Information Science and Technology University. In 2014, when he was about to graduate, he noticed his weight had crept up to 90 kilograms. Seeking to slim down, he searched for weight-loss information online and managed to shed 30 kilograms within half a year.

His frustration at searching across different websites, some better than others, gave him the idea of gathering a more complete set of fitness content onto a single platform. That September, he registered and established Beijing Calorie Technology, setting out to code a fitness application. He ultimately launched his Keep App the following year. With a mantra of “Self-discipline gives me freedom,” the app rapidly built brand awareness, attracting 1 million monthly active users within a year, and 10 million two years later.

Wang Ning was also quite proactive when it came to fundraising. The company completed nine financing rounds between 2014 and 2021, with participation from numerous big-name investors, including GGV Capital, SoftBank, Hillhouse and Tencent. The company submitted its first Hong Kong listing application in 2022, and finally succeeded on its third attempt with its July 2023 IPO.

Keep’s ongoing losses since its listing stem from its failure to find a business model with enduring profit potential. Its early revenue relied heavily on paid subscriptions, which helped it thrive during the pandemic when people used its materials to exercise while confined at home. Its monthly active users peaked of 36.4 million in 2022, only to later ebb with the pandemic’s end.

By the end of June this year, its average monthly active users had plummeted by half from that peak to 18.58 million, also representing a 17% drop year-on-year. But the company has been squeezing more money from each of those remaining fans, with average monthly revenue per user rising 21% to 7.4 yuan. Still, revenue from online memberships and paid content fell 26.9% year-on-year to 247 million yuan in the first half of the year.

Prioritizing quality users over quantity

The decline in Keep’s user base owes at least partly to its recent policy of prioritizing quality over quantity. Less motivated customers on the platform tend to leave, causing the average exercise time of each monthly active user to grow by 15.3% year-over-year in the latest half-year period.

While its subscriber business continues to look for steadier footing, revenue from Keep’s self-branded fitness products increased by 21.7% year-on-year in the latest period to 483 million yuan. As that happened, the segment’s proportion of the company’s total revenue rose above the 50% mark to reached 58% by the middle of this year, compared with 48% a year earlier. The gross margin for the segment also rose by 5.3 percentage points to 40.1%.

Within the fitness products category, revenue from fitness gear rose 49% during the period, accounting for more than 60% of self-branded fitness product revenue. Muscle-training products sold exceptionally well, with gross sales value (GSV) surging by 63%; GSV for yoga products grew by 33%; and GSV for body-shaping products climbed by 49%.

While Keep bills itself as an online fitness platform, its growing reliance on product sales is making it look increasingly like a fitness goods stock – an area where the company doesn’t necessarily enjoy a competitive advantage. Many others already sell into that space, such as leading sportswear stock Anta (2020.HK), whose gross margin of 62% last year, and Li Ning (2331.HK), with a gross margin of 49% during the same period, both clearly far outperform Keep.

Future growth hinges on AI

Keep’s ability to jumpstart its profit growth and boost its stock could well hinge on its development of AI-related products. In that direction, the company is emphasizing a long-term strategy geared toward an AI-driven fitness and health ecosystem. First, it rolled out Keeppace.ai, a self-developed vertical large model for fitness and health.

It also recently released the App's 9.1 version to recruit independently paid super AI members. The latest version includes features such as AI voice running companionship and multi-dimensional data analysis. In the first half of the year, the company introduced over 8,000 AI courses. Daily average token volume use more than doubled from 8.4 billion in March 2026 to 18.5 billion in July.

In summary, investors have punished Keep's stock since its IPO, sending it down more than 90% from its offer price, dragging down its market value from HK$16 billion to just HK$800 million now. Its improving finances seem to have set a floor under the shares for now. But AI developments that could bring some excitement back to the stock remain in preliminary stages and have yet to generate any significant revenue or profits. Accordingly, the stock could enjoy some upside as the company’s prospects improve, but is unlikely to return to its peak valuation anytime soon.

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The recycling specialist’s revenue grew 32.4% in the second quarter, easily beating its earlier guidance, as its core product sales rose nearly 36%

Key Takeaways:

• ATRenew’s revenue rose 32.4% in the second quarter, as its focus on higher margin direct-to-consumer business lifted its profit at more than twice that growth rate
• The recycler detailed a plan to take its business global using a recently launched B2B marketplace and its ReRe consumer brand

By Doug Young

The global computing memory shortage is causing headaches for smartphone and PC makers, affecting sales as most are forced to raise prices due to soaring costs. But that pain is playing into the hands of electronics recycler ATRenew Inc. (RERE.US), whose latest earnings report shows it recorded some of its strongest revenue growth in years during the second quarter, as consumers increasingly eschewed new products in favor of trade-ins and lower-cost used ones.

At the same time, ATRenew showed that China’s export machine isn’t just for new products, as it detailed a roadmap for exporting recycled Chinese smartphones and other electronics to the rest of the world. As that effort gains momentum, the company hit a milestone in June when its monthly overseas sales passed the HK$120 million ($15.3 million) mark.

ATRenew’s development follows a typical pattern for Chinese companies, which often start in focused product areas before expanding their scope and sales networks, first domestically and later globally. The company was founded in 2011 with an initial focus as a middleman buying smartphones and other electronics for sale to others, mostly merchants. Along the way it discovered it could earn better margins by refurbishing models rather than simply reselling them as-is. It has also found higher margins by selling directly to consumers compared with other merchants, and has been emphasizing that part of the business in recent years.

The result has been steady double-digit revenue growth of 20% or more since its listing in 2021, as the company recorded its first quarterly GAAP net profit in 2023 and first quarterly GAAP operating profit a year later. It continued that tradition in the second quarter, reporting its revenue rose 32.4% year-on-year in the period to 6.61 billion yuan ($974 million). The latest figure represented not only a record, but also easily exceeded the company’s previous guidance for revenue of up to 6.34 billion yuan.

Within the revenue total, product sales rose 35.9% to 6.19 billion yuan, accounting for 94% of the total, with the remainder coming from services.

Much of the strong performance came as ATRenew benefitted from sagging sales for new phones due to soaring memory prices. New smartphone shipments in China fell 4.3% year-on-year in the second quarter to 66 million units, marking a fifth consecutive quarter of declines, according to data tracking firm IDC. That weakness has created “significant growth in demand for high-quality, affordable pre-owned smartphones and other second-hand products,” said ATRenew founder and Chairman Chen Xuefeng, who also uses the English name Kerry.

“This year, against new device sales headwinds, e-commerce platforms, brand manufacturers, and recyclers have all increased their investments in trade-in scenarios, making C2B recycling for pre-owned consumer electronics more efficient,” he said. “With strong sourcing channels and convenient recycling fulfillment, we have built an industry-leading supply base and further strengthened our supply-side advantage in the pre-owned value chain.”

ATRenew continued to build up its direct-to-consumer business, which has grown rapidly in recent years and is on track to supply more than half of its product sales in the not-too-distant future. Revenue from the sale of compliant refurbished products rose 87.8% year-on-year during the quarter, lifting direct-to-consumer sales to 48.8% of overall product revenue during the period, up more than 14 percentage points from 34.4% a year earlier.

New frontier

But perhaps the most exciting part of the latest report was ATRenew’s plans to develop the international market, as it estimated the overall global second-hand market could be worth over $100 billion in annual sales. The company unveiled its first detailed overseas development roadmap last month, when it opened its first offshore consumer-face store using its global ReRe brand in Hong Kong, and launched its FoneSquare B2B marketplace.

On its second-quarter earnings call, Chen said the company’s main international focus will be on FoneSquare, noting that it aims to make such B2B business account for about 90% of its overseas revenue over the long term. He added the company’s goal is to build FoneSquare into the equivalent of PJT Marketplace, its main B2B trading platform for the China market, over the next three years.

Chen said the company already has a mature B2B system in Hong Kong, covering inspection, operations, and sales. “We plan to start building new regional capabilities in Dubai in the second half this year,” he said. “FoneSquare is now officially available in Hong Kong app stores, and we plan to gradually expand into Middle Eastern markets like Dubai and Southeast Asian markets like Malaysia.”

Back at home, ATRenew’s results showed it continued to operate more profitably through its growing focus on direct-to-consumer sales, which it conducts with help from its large network of physical stores and growing team of door-to-door fulfillment workers. That team reached up to 3,000 people around this year’s annual June 18 shopping festival, up sharply from 2,248 at the end of March. But management added the team’s size has fallen from that peak since then, showing it can easily adjust the number of workers to fit market demand.

The company actually reduced its footprint of stores during the quarter, which management pointed out is “standard business practice” after a period of rapid buildup. It also experimented with luxury- and sports-themed stores, as it promotes its non-electronics categories like second hand luxury bags and gold, developed over the last two years. Revenue from that business, which ATRenew calls “multi-category,” grew over 30% in the second quarter, as strong growth for luxury goods offset a drop in gold product sales.

As the direct-to-consumer business gained momentum, ATRenew’s gross margin for 1P business rose to 15.7% from 13.2% a year earlier, lifting its overall non-GAAP operating profit margin by 69 basis points year-over-year to 3.1%. The improving margins lifted its adjusted income from operations by 70% year-on-year to 206 million yuan, while its net income rose 78.6% to 129 million yuan, both more than double its revenue growth rate for the period.

As a recycling specialist, ATRenew also places strong focus on environment, social and governance (ESG) principles, and highlighted its efforts with the release of its latest ESG report  in June. That report showed the company reduced its Scope 1 and Scope 2 emissions intensity by 9.5% in 2025 from the previous year, as it works towards a 2030 target of a 35% reduction in Scope 1 and Scope 2 emission intensity from a 2024 baseline.

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China's largest community-based fresh food chain has reapplied to list in Hong Kong, planning to use the funds to boost its store network and supply chain capabilities

Key Takeaways:

• Qdama has renewed its Hong Kong listing application, reporting both its profit and revenue fell in the first half of 2026
• The community grocer’s footprint rebounded to more than 3,000 stores once again at the end of June

By Lau Chi Hang

Its slogan is "No overnight meat," referring to its mission to only offer the freshest ingredients from its community-based shopping network. But a new IPO application from Qdama International Holding Ltd., filed last week, also looks just slightly stale.

The latest filing comes after Qdama’s original application at the start of this year lapsed after the maximum six months. But those six months look much longer in the current climate, which has seen Hong Kong’s wave of IPO fever earlier this year start to ebb. Even market darlings like companies involved in AI large models, chips and related infrastructure have seen their shares drop by half or more from recent peaks. That means more traditional companies like Qdama may have missed the best time to jump on the listing train.

Adding to its lukewarm timing, Qdama's financial performance isn’t especially mouth-watering. Its revenue has been roughly flat for the last three years, ranging from 11.3 billion yuan ($1.68 billion) to 11.8 billion yuan. That continued in the first half of this year, when its revenue fell 2% year-on-year to 5.1 billion yuan.

At the same time, its net profit has been quite erratic due to fair value changes in its financial instruments unrelated to operations. The company earned profits of 169 million yuan and 288 million yuan in 2023 and 2024, only to drop to a 279 million yuan loss last year, before rebounding to a 68.05 million yuan profit in the first half of this year.

Unremarkable performance

The company’s gross profit has been similarly stagnant, rising slightly from 1.2 billion yuan in 2024 to 1.27 billion yuan last year. The metric was similarly flat in the first half of this year at 584 million yuan. Put differently, Qdama's business hasn’t regressed, but it hasn’t advanced either, meaning its current situation can only be described as "stable" if you’re an optimist, and “stagnant” if you’re a pessimist.

That’s hardly ideal for a company seeking a compelling story for investors in search of diamonds in the rough. Understanding that, companies typically accentuate the positive in their prospectuses, often by saying how they’ll use their IPO proceeds to expand. Qdama is no different in that regard, saying it plans to use the funds to develop its store network and strengthen its supply chain capabilities.

To better understand the company's prospects, it’s helpful first to better understand its business model. That model is fairly straightforward, mirroring the approach taken by many of China’s famous bubble tea, restaurant and toy chains. The founder typically opens a store, and spends the first few years perfecting the format and finding a path to profits. From there the next step is expansion and building up brand awareness, at which time the founder often turns to franchising to start turbocharging store counts.

By that time the founder has a more diversified revenue stream, derived from franchising fees, as well as sales from providing raw materials, equipment and store decorations to franchisees. Revenue from these franchise networks can easily exceed 90% of the company's total. Meantime, self-operated stores often become an afterthought, functioning more like prototypes to demonstrate the business’ operations.

Such a model demonstrates that Qdama must keep building up its franchise network if it wants to jumpstart its growth and attract investors.

Shrinking footprint

But opening new stores is often easier said than done. Founded in 2014, Qdama evolved from a single small store into a vast network with thousands of locations in just a few years. As the business grew, founder Feng Jisheng, who has since left the company, aimed to create a national chain that had 3,700 stores at its peak in 2021.

But the company ran into headwinds with its plan to expand to North China, which went far less smoothly than in its base in the South. It discovered that Northern Chinese are less particular than their Southern peers, less worried about the freshness of meat and content to eat frozen products. It also discovered that rents in large Northern cities were sometimes exorbitant, leading to a crushing defeat that saw the company sharply downsize its footprint in that part of the country.

As it retreated, Qdama’s store count fell to just over 2,900 by the end of last year. It resumed expanding this year as it marched towards its IPO, opening new stores that brought its total to 3,014 by the end of June.

Roughly two-thirds of Qdama's stores are currently located in South China’s Guangdong province. The company has not only failed to step out of the South, but is reaching saturation in its home province.

Fierce competition and low margins

In the absence of a growing store count, the company might still be able to attract investors with rising gross margins from its growing experience and economies of scale. But Qdama's gross margin is quite thin and only growing slowly, a common predicament for many grocers. The figure rose from 9.8% in 2023 to 11.2% last year, and reached 11.5% in the first half of this year.

Making matters worse, Qdama has been forced to focus its expansion on Guangdong, resulting in geographic concentration that has led to cannibalization of its own stores, which sometimes can be as close as just 250 meters apart.

Hong Kong currently lacks any listed companies with similar profiles to Qdama’s. But comparable food ingredient companies include Guoquan (2517.HK) and Xiaocaiyuan (0999.HK). Weakening stock market sentiment is being compounded by a broader lack of interest in consumer companies, which are being forced to cut prices amid weak consumer demand. That doesn’t bode well for a company like Qdama.

Guoquan has tumbled from a high of HK$4.75 in June to just HK$1.76 recently, dropping its trailing price-to-earnings (P/E) ratio to just 8.5 times. Xiaocaiyuan's stock has fallen by over 30% from its high in the past year, giving it a trailing P/E ratio of 13.5 times. Similar-level valuations for Qdama could give it a post-listing valuation of between HK$1.4 billion and HK$2 billion – hardly mouth-watering for investors looking to buy into China’s next grocery giant.

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The robotaxi operator has even achieved single-vehicle profitability in Guangzhou and Shenzhen, but high R&D and depreciation costs are undermining its high valuation

Key Takeaways:

• Pony AI's robotaxi revenue surged more than sixfold in the first half of the year, as it races towards a year-end target of more than 3,500 vehicles.
• Despite achieving single-vehicle profitability in some markets, the company's net loss continues to widen

By Lee Shih Ta

After years of slow advances, robotaxi commercialization has accelerated significantly this year in China. The leading trio of Pony AI, WeRide and Baidu’s Apollo Go have been putting more vehicles on the road, extending their reach to more cities. Individual fleets are crossing into the thousands of vehicles, lighting a fire under company order volumes and revenues.

Leading that charge is Pony AI Inc. (2026.HK; PONY.US), whose latest financial results, released last week, show its revenue nearly doubled year-over-year in the first half of 2026 to $70.47 million. Within that, revenue from its robotaxi services surged by 534% to $20.64 million from just $3.26 million a year earlier, driving its contribution of the company’s revenue pie from 9.2% to 29.3%. The growth accelerated throughout the period, with the passenger fare growth rate rising from 456.5% in the first quarter to 849.3% in the second.

Among its peers, Pony AI is notable for its rapid expansion. WeRide's (0800.HK; WRD.US) revenue in the first half increased by 73.3% year-over-year to 346 million yuan ($51 million), behind Pony AI. Both companies are still losing significant money, including a first-half net loss of $98.86 million for Pony AI, and a similar-sized 789 million yuan ($116 million) loss for WeRide. WeRide's overall gross margin stands at 36.6%, notably higher than Pony AI's 16.9%. But WeRide’s mix includes L2, L3 and L4 autonomous driving businesses in addition to its robotaxi operation, making the margins a bit of an apples-to-oranges comparison.

Baidu (9888.HK; BIDU.US) doesn’t disclose revenue and profitability metrics for its Apollo Go service. But it said the platform already completed 3.2 million fully unmanned driving orders in this year’s first quarter, up over 120% year-on-year, with orders for a single week peaking at more than 350,000.

Pony AI's global robotaxi fleet reached 1,975 vehicles by the end of June, with plans to boost that figure sharply to more than 3,500 vehicles by year-end. It has more than 1.5 million registered users in China, and its average weekly paid orders in May were more than double the rate in January. More importantly, the company said that Guangzhou and Shenzhen have achieved single-vehicle profitability on a citywide scale. But achieving single-vehicle profitability is still far cry from overall profitability.

R&D expenses of $104.1 million further weighed on the company’s profitability, outpacing its total revenue during the six-month period, while its cash used in operating activities also rose to $118.2 million. CFO Wang Haojun recently said that, based on company calculations, Pony AI will only be able to reach positive cash flow when 40,000 to 50,000 of its robotaxis are deployed domestically in tier-one and tier-two cities. That means that meeting its target of 3,500 vehicles by year-end will still only amount to less than 10% of that threshold.

Regulation remains a wild card on the road to the larger fleets necessary for sustainable operations. Rumors circulated earlier this year that approval of new licenses was suspended after an incident involving Baidu’s Apollo Go service in the spring. But state media subsequently denied a “comprehensive suspension,” and Pony AI also said its business wasn’t affected. Judging from its second-quarter performance, the incident hasn’t significantly slowed the company’s pace of expansion.

WeRide disclosed that average daily orders per vehicle for its robotaxis in China exceeded 21 during the second quarter, up 24% quarter-over-quarter, with a peak of 28 orders. Pony AI doesn’t give data for that metric. However, as fleets grow from thousands to tens of thousands of vehicles, revenue generated per vehicle will become increasingly important to dilute depreciation and operating costs.

Co-built fleets and overseas expansion

Expanding a fleet to tens of thousands of vehicles requires huge capital expense for a company using a self-operated service model. Pony AI previously disclosed that vehicle depreciation accounts for about half of its total costs, and scaling up will further push up vehicle purchasing and maintenance costs.

To defray some of those costs, the company is increasingly turning to a “co-built fleet model,” where partners such as ride-hailing platforms and taxi companies own and operate the vehicles, while Pony AI provides autonomous driving technology and generates revenue from vehicle sales, “virtual driver” services, and fare sharing. The company said revenue from the co-built model achieved significant sequential growth in the second quarter.

Pony AI is turning to a similar strategy overseas, as it plans to deploy over 2,000 robotaxis across five European cities in a partnership with Uber (UBER.US), bringing the committed number of vehicles for overseas partnerships to more than 4,000. The model will make it easier for Pony AI to expand its fleet while better controlling its cash burn.

Despite the ongoing expansion, investors have been starting to question high valuations awarded to robotaxi operators at the time of their listings. Pony AI’s Hong Kong stock dropped more than 5% the day after its results announcement to close at HK$58.60, down by more than half from its offering price of HK$139 last November. Shares of WeRide, which debuted the same day, also currently trade about 40% below their issue price. In terms of price-to-sales (P/S) ratios, Pony AI's multiple has fallen from approximately 100 times at the time of listing to 27 times now, while WeRide's has dropped from 62 times to about 17.

The fact that the P/S ratios are both down by over 70% shows their IPO pricing last year incorporated aggressive expectations for their robotaxi commercialization, and now investors are re-evaluating those expectations. The declining ratio also partly stems from the rapid rise in each company’s revenue. But Pony AI's stock is now down by nearly 60% compared to its IPO price, indicating that high-speed revenue growth is not yet sufficient to support expectations at the time of its listing.

Even after its stock decline, Pony AI's P/S ratio of 27 times is still 60% higher than WeRide's 17, indicating investors are still more bullish on the former for its faster robotaxi growth, aggressive fleet targets, and single-vehicle profitability in Guangzhou and Shenzhen. Now, they will be watching to see if its co-built fleet model can reduce its cash burn and drive improvements in utilization rates, gross margins, and cash flow. Positive developments on those fronts could be cause for some upside to its stock.

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The mid-scale restaurant chain’s in-restaurant dining revenue rose 18.1% in the first half of 2026, more than double its 7% overall revenue growth

Key Takeaways:

• Xiaocaiyuan’s revenue rose 7% in the first half of the year, but its profit fell 24.3%, as it focused on a price-for-volume strategy and reined in its delivery service
• The mid-range restaurant operator slowed its expansion, opening just 17 new stores in the latest six-month period after opening 135 in the second half of 2025

By Edith Terry

Wang Shugao, founder and chairman of Xiaocaiyuan International Holding Ltd. (0999.HK), was a farm boy who, after moving to the city, spent 10 years pushing carts before training as a chef and opening his own restaurant, aptly named “Little Vegetable Garden.”

He and wife Zhou Taoxia pulled together their savings and invested in business hotels, before a failed venture in Nanjing turned them back to their roots in the city of Tongling of East China’s Anhui province. After opening their first Anhui cuisine restaurant in 2013, their chain’s business exploded by appealing to diners with its homespun approach and budget meals.

Now, Wang and Zhou are cooking up a new recipe to reinvigorate their chain in China’s constantly changing restaurant landscape. Xiaocaiyuan’s midyear results, released last week, are showing some early signs of success for the new strategy. The company is playing down its takeout delivery business, which has become a major battleground among Chinese restaurants, in favor of lower-cost in-restaurant dining.

“The second half of 2025 to the first half of 2026 will be a transformative year for Xiaocaiyuan,” Wang said in an interview last year, hinting at things to come.

The company’s half-year results showed a 7% revenue increase and a 24% profit dip, mostly due to price slashing to encourage volume – not the most mouth-watering figures by most standards. Wang framed lower prices as a way of giving back to customers, saying the company needed to reduce excess and return profits to its customers.

He said the company is intentionally reining in its delivery business, reinforcing the brand value of its ‘dine-in’ restaurants, and delivering major cost efficiencies through a billion-yuan, state-of-the-art central food processing factory in the Anhui city of Ma’anshan, with a capacity to serve 3,000 restaurants. The company has also installed 300 robots in its restaurants and is looking ahead to a separate business supplying cooking robots to households.

Strong investor appetite

Investors seemed to agree that Xiaocaiyuan is on the right trajectory, despite the declining profits. The stock rose 2.2% the day after the announcement, and continued to climb after that to close at HK$8.18 on Thursday, up 4.3% from pre-announcement levels.

Analysts also like the stock, with seven of the eight surveyed by Yahoo Finance rating it a “buy” or “strong buy.” Its price-to-earnings (P/E) ratio of 11.5 is only a fraction behind better-known competitor Haidilao (6862.HK), and is well ahead of Green Tea Group (6831.HK) at 7.3.

All the chains have reduced their prices to adjust to a new normal of hyper-competition and growing consumer caution in China’s slowing economy, although Xiaocaiyuan comes with a twist. It has conceded China’s hotly contested takeout delivery battleground, and last August stopped participating in discounts offered by specialist delivery platforms to prioritize dine-in services at its restaurants. Now, the results are showing up.

In an interview last year, Wang said too much takeout business destroyed a brand’s image and made it more difficult to adequately serve dine-in customers. He added that takeout revenue ideally should account for around 30% of the total, rather than the nearly 40% in both 2024 and 2025. The company now divides takeout orders into two categories, peak and off peak. During peak hours, dine-in orders get priority, while during off-peak, takeout orders take priority.

Overall, it appears Xiaocaiyuan’s new formula is going exactly as planned. Its 2.9 billion yuan ($430 million) in first-half revenue, in addition to rising 7% year-on-year, was also up 10.3% sequentially. And while its profit dropped 24.2% year-over-year to 289.8 million yuan, the figure was down by a lesser 13% on a sequential basis.

Revenues from Xiaocaiyuan’s delivery business fell to 32.6% of its total in the latest reporting period, approaching Wang’s 30% goal, from 39% a year earlier. As a result of that downplaying, revenue from the company’s delivery business dropped by 10.6% in the latest six-month period, even as revenue from its dine-in business rose by 18.1%.

The company blamed the profit decline on across-the-board price reductions at its restaurants, as well as the strategic cutback in its delivery business. The increase in restaurant revenues partly reflected new restaurant launches, as well as Xiaocaiyuan’s price-for-volume strategy, which Wang initiated in 2023. The company operated 824 Xiaocaiyuan restaurants at the end of June, up 23% from 672 a year earlier. Its new openings slowed to just 17 in the first half of the year from 135 in the second half of 2025, following a typical seasonal pattern.

Small-town roots

Wang has said his chain, whose origins trace back to China’s smaller third-tier cities like his hometown of Tongling, has penetrated just 20% to 25% of the Chinese market, and will stay focused on that domestic market for the next five to 10 years. Around 40% of revenues came from third-tier cities and below in the first half of this year.

He said Xiaocaiyuan’s restaurants cost about 1 million yuan to open, and typically recoup their investment within 10 to 11 months. The company’s same-store sales dropped 12.5% in the first half of the year compared with a year ago due to its lower pricing strategy. But it was able to offset that with new store openings.

As its prices dropped, average spending per dine-in customer fell from 57.1 yuan in the first six months of 2025 to 50.5 yuan in 2026. But the lower prices helped to boost same-store table turnover to 3.3 times per day from 3.1 a year earlier.

The lower price strategy included a new ‘88VIP’ membership program that was introduced in January, offering 12% discounts with an 88-yuan annual fee. By July, the chain had signed up 1.5 million members, with a repeat customer rate of 65%, driving an incremental 1.89 million in customer traffic.

To boost its efficiency, Xiaocaiyuan is betting that its new Ma’anshan central food processing factory will reduce costs by using robotic production, AI quality control and intelligent warehouse scheduling. The company cited examples of robots that now cut all of its braised pork into chunks, and a chicken fillings production line that is almost unmanned.

Sometimes appearances can be deceiving, which could be the case with Xiaocaiyuan’s big profit decline in the latest reporting period. The company would probably like investors to believe that hit was temporary as it positions itself for longer-term success. As Wang likes to say, “Everybody in the restaurant industry knows that food is delicious. Yet affordable wins out. It’s no mystery that someone born into poverty was able to master this principle.”

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"As much as the high-tech sector has become national interest in China, the same thing has happened in the U.S." – commenting on perils Apple could face as it explores using Chinese memory chips

Key Takeaways:

• Apple's reported plan to use Chinese memory chips highlights a complex balancing act between commercial needs and geopolitical pressures
• Burger King's turnaround after taking a major state-owned partner demonstrates how the right local alliance can revive a struggling Western brand

By Rene Vanguestaine and Doug Young

Multinationals operating in China are increasingly adopting highly tailored, localized strategies to survive and thrive. Whether navigating supply chain shortages in the tech sector or battling fierce competition in the fast-food arena, the playbook is changing. This is playing out now with two major Western names. Apple (AAPL.US) is exploring a strategy to buy memory chips from a leading Chinese producer, while Burger King is having a renaissance after forming a new alliance with a massive state-owned conglomerate.

We’ll start with Apple. According to The Wall Street Journal, the tech giant is reportedly looking into buying memory chips from CXMT (688825.SH), one of China's leading computer memory makers. For decades, the global memory sector toiled in anonymity, producing a commodity for PCs and smartphones dominated by the South Korean duo of Samsung (005930.KS) and Hynix (000660.KS), alongside U.S. giant Micron (MU.US). However, the sudden explosion of AI has created a massive global shortage, leading to spiking prices.

From a purely commercial standpoint, Apple's move makes sense as the company attempts to solve this supply shortage and potentially secure more favorable pricing. But this is where it gets complicated. Apple is acutely aware of the trade tensions between the U.S. and China. To mitigate this, the company has reportedly developed a regional isolation strategy: using CXMT chips exclusively in devices sold within China, while utilizing other suppliers for the rest of the world. We believe this represents a fascinating potential business template for other multinationals that might hesitate to use Chinese components globally.

Will this satisfy Washington and Beijing? The U.S. government has determined that CXMT works with the Chinese defense industry, which makes any partnership a deeply sensitive issue. Additionally, Washington has been actively trying to build a self-sufficient domestic chip industry. As much as the high-tech sector has become a national interest in China, the exact same thing has happened in the U.S. This shift started during the first Trump administration, continued under Biden, and accelerated during Trump's second term. The message from Washington is clear: don't help China build a growing business in the chip sector, use what's available in the U.S., and invest heavily alongside everybody else.

To soothe these political concerns, Apple has already announced it will help Intel (INTC.US) and Micron grow in the U.S. Ultimately, Washington's primary fear is that American companies might engage in technology transfer. As long as Apple simply uses existing CXMT chips, it may be viewed as the lesser evil. However, if U.S. companies ask these Chinese firms to get involved in custom designs, Washington will likely step in.

A state-owned recipe for fast food success

Shifting from tech to fast food, we're seeing another Western giant make a major tweak in its localized strategy. Burger King had been struggling in China in the face of better-run competition from McDonald's (MCD.US) and KFC (YUMC.US). But the brand appears to be turning a corner after its parent, Restaurant Brands International (QSR.US), partnered with Citic, a major state-owned conglomerate.

On a recent earnings call, Restaurant Brands executives noted that under this new partnership, Burger King China recorded another quarter of “double-digit comparable sales and a sequential improvement in unit economics.” In the current environment, double-digit comparable sales are incredibly strong.

What does a massive state-owned conglomerate like Citic bring to the table? We think it brings unparalleled "fire power." Beyond basic benefits like better sourcing of food ingredients and improved pricing, Citic provides tremendous leverage for securing building leases. Being state-owned also gives Citic an additional aura and the ability to get things done, particularly through better relationships with local governments. For a consumer brand, this looks like a win-win.

This state-backed partnership model contrasts sharply with other routes, such as aligning with private equity firms. We recently saw Starbucks (SBUX.US) choose a major local private equity name called Boyu to help navigate a market where it has fallen behind Luckin Coffee (LKNCY.US) in total outlets. There are cases where private equity firms have been very successful, and they can course-correct very quickly if something goes wrong. However, they historically present less certainty than state-owned giants. Because Starbucks is already an established brand, going with a PE firm represents less risk for them than it would for a smaller player. Sadly, smaller or mid-tier brands don't always have the luxury of choosing a giant like Citic. Brands like Tim Hortons and Dunkin Donuts often end up with smaller partners and ultimately struggle or close. These smaller partners simply aren't as efficient in operating and financing as the bigger PE firms, let alone state-owned conglomerates. It's a classic chicken-and-egg situation: major players like Citic want to partner with the biggest names, leaving smaller brands to take what they can get.

The robotaxi leader’s latest financial report shows its losses remained stubbornly high in the first half of this year, despite a substantial revenue increase

Key Takeaways:

• WeRide reported its revenue surged by 73% to 346 million yuan in the first half of 2026, while it lost 790 million yuan
• The company’s fleet of autonomous robotaxis reached 1,800 vehicles by the end of June

By Lau Chi Hang

Investors frequently ask when autonomous driving will finally succeed, to which some reply that day will come when the driving profession disappears.

The statement may be somewhat exaggerated, but it does reflect the long road autonomous driving faces before it can become truly commercialized. For the enterprises waiting for that day, profits are largely a fleeting dream, and containing losses and simply keeping the lights on is often more realistic. Several notable names, like Tsingtech Microvision, once valued as high as 10 billion yuan; Zongmu Technology, backed by Lenovo and Xiaomi; and former autonomous truck highflyer TuSimple, have all reached the end of their roads or are close.

Even a powerhouse like robotaxi operator WeRide Inc. (0800.HK; WRD.US) faces an uphill road to profitability, which is reflected in its latest earnings report delivered last week. Its revenue rose by a healthy 73.3% to 346 million yuan ($51.31 million) in the first half of the year, including a stellar second-quarter reading of 232 million yuan, up 82.2% year-on-year and doubling from the previous quarter.

Continuing losses

The company has been steadily building up a robotaxi fleet that it hopes will one day become its core business. At the end of July, its global fleet exceeded 1,800 vehicles, up nearly 40% from the 1,300 vehicles it had at the end of April. Average daily rides per vehicle during the second quarter exceeded 21, up 24% quarter-over-quarter, while its registered user base grew by 35% sequentially.

WeRide’s overseas autonomous driving business is now in 13 countries, including a partnership with ride-hailing giant Uber (UBER.US) for European autonomous robotaxi services in Madrid and Zurich.

While all those milestones look encouraging, investors shouldn’t rejoice too early. Despite the surging revenue, WeRide has continued to burn through money, including a loss of 790 million yuan during the first half of the year, similar to the same period last year. The company lost 400 million yuan in the second quarter alone, narrowing by 1.4% year-on-year, while its quarter-over-quarter loss expanded by 3%.

WeRide has lost big sums in each of the last four years, including 1.3 billion yuan in 2022; 2 billion yuan in 2023; 2.5 billion yuan in 2024; and 1.65 billion yuan last year. Its latest loss translates to another 1.6 billion yuan down the drain on an annualized basis, showing its red ink remains stubbornly high despite its revenue gains.

In that context, it’s not surprising the company's Hong Kong-listed stock fell by over 6% the day after its latest earnings announcement, showing investors remain skittish about its longer-term prospects.

Fierce competition

While WeRide’s revenue growth looks strong, the nearly 350 million yuan in first-half revenue the company reported is hardly anything to write home about. The figure remains low on an absolute basis, as the big majority of its business comes from programs still in pilot phases. That will make it difficult for the company to achieve economies of scale needed to drive down costs through mass production.

And even though the company's first-half revenue rose by 73%, its expenses have been growing at a similar clip. Its marketing and advertising expenses, in particular, reached 51.9 million yuan in the first half of the year, up 87%, or even more than its revenue growth. That means the company is achieving its revenue growth in large part on massive advertising and marketing spending. R&D spending is also constantly required as the technologies evolve, though that figure grew by a more modest 24% in the first half to 798 million yuan.

Then there’s the competition, as WeRide attempts to outrace global rivals like Waymo to mainstream consumer acceptance. That race was nicely captured by WeRide Chairman Han Xu, also known as Tony, when he said during a recent interview that: “In every generation, new talents emerge, with each leading the field for merely three to five months.”

That illustrates just how brutal competition is in the autonomous driving industry, where today’s market leader could quickly become yesterday’s news. That means spending is essential to stay in the race, leaving profits somewhere in the distance for everyone.

Elusive L5 goal

Unmanned driving is divided into six levels, with Level 5 (L5) as the highest, defined as truly autonomous. But how long will it take to reach that goal? Han spoke candidly on that topic in his interview, saying, “It is entirely possible that L5 won’t be realized in the next 10 to 20 years.” While a mere flick of a finger in human history, such a timeframe can feel quite distant and uncomfortable for investors.

Of course, WeRide may not need to wait for L5 driving to turn a profit. But realistically speaking, how long will it take to reach that milestone?

Han previously said his goal is to have 1 million autonomous vehicles in operation, quoting an ancient proverb: “Without taking small steps, one cannot complete a journey of a thousand miles.” He explained that 1,000 vehicles is just the current starting point, whereas 1 million is a longer-term objective that must be achieved for success.

That looks quite ambitious, given WeRide's current fleet only consists of 1,800 vehicles. And while the company operates under an asset-light model, its constant need for new investment makes it look like profitability won’t be on the horizon in the next two or three years.

WeRide CFO and head of international Jennifer Li said the company is moving steadily toward self-sustainability, aiming to assure investors the company is beginning to see improvements in its cash flow. Despite that, Li wasn’t any more specific on how much further WeRide must travel before it breaks even, let alone becomes profitable.

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The vaping company announced its recent purchase of 51% of a leading European distributor of smoke-free products and fast-moving consumer goods

Key Takeaways:

• RLX said its revenue rose 14.8% year-on-year in the second quarter, but its international sales for the period plunged 40% sequentially
• The vaping company announced a new acquisition in Europe, following a similar purchase in the market last year, as it aggressively expands beyond its home China market

By Doug Young

Are its revenues going up in smoke?

Not at all, says leading vaping products maker RLX Technology Inc. (RLX.US), whose latest financial report, released on Friday, showed a large decline in its international business during the second quarter compared with the first. That might look alarming to some, since international has become the company’s main business lately, accounting for more than 70% of revenue, since RLX made a sharp turn overseas after a major crackdown in its home China market.

At the same time, the company unveiled a new acquisition in Europe, marking its second on that continent in just over a year. The acquisition comes in the distribution arena, with the purchase of 51% of what RLX described as “one of Western Europe's largest distributors of next-generation smoke-free and (fast moving consumer goods) products.”

The big sequential revenue drop, despite the company’s reassurances, may have been a factor behind a selloff that saw RLX’s stock drop 3% after the results were published on Friday. Margin erosion from the new acquisition could also be a concern, since, as company officials pointed out, distributors typically earn substantially lower margins than brand owners.

RLX never disclosed the name or purchase price of its first European acquisition, a vaping company, in May 2025, nor did it provide similar information for the latest purchase. That means the purchases probably cost less than $20 million each, which would be easily affordable for RLX, which had 13.9 billion yuan ($2.06 billion) in cash at the end of June.

Established in 2019 by Wang Ying, a veteran of DiDi Global, Uber China and Bain & Co., who also uses the name Kate, RLX rode the global vaping craze to riches in its first few years by selling its wares to e-cigarette users in China. But it ran head on into a wall of regulation starting in 2021, and saw its revenue drop sharply over the next two years as it raced to steady its ship.

Even after finding a more diversified formula for success by expanding globally, the company’s annual revenue of 3.96 billion yuan last year is still less than half its peak of 8.5 billion yuan in 2021.

Going global

The company, which uses the RELX name outside China, has found major global markets in Europe, largely through acquisitions, and also in several Asian markets, most notably Indonesia, the Philippines and South Korea. Its LinkedIn page says its products are now available from more than 150,000 points of sale and over 25,000 RELX stores in 40 countries.

The company’s revenue grew 14.8% in the second quarter year-on-year to 1.01 billion yuan, marking a sharp slowdown from previous recent quarters, including 96% growth in the first quarter. Its international business also fell to 68.5% of revenue in the latest quarter from 72.3% in the first quarter, when its revenue totaled 1.59 billion yuan. Thus, its international revenue plunged 40% on a sequential basis from the first to second quarters, while its China revenue also fell 28% over that time, according to our calculations.

Realizing investors would worry over such a massive slowdown in the global business, CEO Wang was quick to point out the drop wasn’t due to slowing demand. “As expected, revenue and gross profit moderated sequentially … reflecting a trade inventory normalization following the first quarter's shipment pull forward driven by regulatory export adjustments.”

The earlier first-quarter revenue surge, she and others explained, owed partly to pre-stocking by some of the company’s partners. CFO Lu Chao added that the big first-quarter revenue jump owed partly to an unspecified “one-time policy adjustment boost.” The first-quarter jump does appear to represent a one-time effect, though it’s a bit unclear if the second-quarter revenue might represent a slowdown as the industry matures.

In fact, a sizable piece of RLX’s revenue growth, which ranged between 40% and 50% year-on-year in the final two quarters of 2025, owed to its first European acquisition, whose results were included in the company’s total from the third quarter of last year. The company pointed out the newest acquisition of the 51% distributor stake in June will have a similar effect in this year’s third and fourth quarters, though it will also drag down the company’s gross margin.

Smoke and mirrors

The bottom line, at least for average investors, is that RLX is engaged in a bit of smoke-and-mirrors these days, in large part from the two major acquisitions, making it difficult to know how well the company is really doing. That means it could be another year or two before RLX’s true financial health becomes more apparent, assuming it doesn’t make any new major purchases.

The newest acquisition looks somewhat different from RLX’s previous activity, as it appears to be a distributor whose products cover a wider range of both traditional smoking, vaping and smoke-free products. The distributor will carry RELX products going forward, though RLX emphasized the distributor will also continue to carry products from other companies. Sam Tsang, RLX’s head of capital markets, added that the acquisition will “meaningfully expand our operating profit and net profit scale.”

In the latest quarter, the company reported its net profit rose 1.6% year-on-year to 222 million yuan from 219 million yuan a year earlier, and its non-GAAP profit actually fell 18% to 239 million yuan over that period. While those numbers don’t look too impressive, it’s difficult to tell what might be happening in the smoke-and-mirrors environment.

Outside the new acquisition and big sequential revenue drop, RLX said it continues to explore diversification not only geographically but also into smokeless products. It said it recently launched an oral nicotine pouch line of products, and is in the process of ramping up production and distribution. It has also developed “heat not burn” products that release nicotine by heating, rather than burning tobacco, though it has yet to launch those.

Broadly speaking, the company is still very much in a state of transition characterized by global expansion both organically and through M&A, which is reflected in the instability of its revenue and profit growth.

Regulation remains the company’s biggest concern, and competition from big tobacco companies with vaping-related assets also looms as a challenge. Tariffs remain a threat as well, though the company said it is building a new manufacturing facility in Southeast Asia to mitigate that factor.

In sum, RLX has shown it can do quite well in the past, and it has plenty of financial resources to execute a new strategy following the China vaping crackdown. Now, the smoke just needs to clear for a better picture of its longer-term prospects.

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Once embraced by investors, the Tencent-backed online literature company’s shares now trade at just one-fifth of their peak

Key Takeaways:

• China Literature reported its revenue rose 11% in the first half of this year, but tax-related expenses dragged down its profit by more than 80%
• The company’s intellectual property business grew by over 40% during the six-month period, as seeks to better cultivate the area with help from AI

By Cheng Shui Tong

Nine years after listing with high hopes that never quite materialized, China Literature Ltd. (0772.HK) is hoping to open a new chapter for its long-suffering shareholders.

The country’s leading online literature provider’s bottom line certainly didn’t look too impressive when it released its results for the first half of 2026 earlier this month. Yet despite an 84.1% profit plunge, its shares leaped 10% the following day.

In fact, China Literature's top line revenue looked much healthier over the six-month period, up 10.7% year-over-year to 3.53 billion yuan ($524 million). The massive profit drop was mostly due to tax-related expenses, including about 300 million yuan in back taxes and late payment penalties the company made.

China Literature’s online business, historically its main breadwinner, actually retreated in the first half of the year. Instead, its intellectual property (IP) operation was the star of its new chapter, with revenue up 41.9% year-over-year to 1.61 billion yuan. Gross merchandise volume (GMV) from the IP derivative businesses was also strong, leaping 60% to 780 million yuan.

Also notably, revenue from the company’s short dramas and AI-animated dramas, mostly comic-style shorts generated using AI, surged 2.3 times to over 430 million yuan. Solid performance metrics aside, the warm investor reception for the latest report probably also owed at least partly to China Literature's current stock levels, now hovering near record lows.

China Literature enjoyed its moment in the sun when it launched its Hong Kong IPO nine years ago. The company was formed after parent Tencent acquired rival Cloudary in 2015 and combined the two, before listing the company two years later.

Basking in Tencent's halo during the IPO, the company attracted a massive HK$520 billion ($32 billion) in interest from retail investors, the second-highest amount ever for new listings in Hong Kong at the time. The stock doubled from its HK$55 listing price on its debut, pushing its market capitalization close to HK$100 billion with a meteoric price-to-earnings (P/E) ratio well over 100 times on big hopes.

But that stellar stock performance proved to be a flash in the pan. The shares quickly surpassed HK$100 after the IPO – a level that to this date remains their all-time high. More recently, the shares have moved steadily downward to hover near a post-IPO low of about HK$20. The protracted slump boils down to years of lackluster profitability and an absence of compelling new narratives to get investors excited.

Fleeting glory

In its early days as a public company, China Literature leaned heavily on its online paid-reading business, which accounted for 70% to 80% of its revenue. The IP operation later emerged as a second growth engine, and was roughly neck-and-neck with the online reading business by 2024. Yet the IP operation failed to mount the kind of explosive growth that gets investors truly excited, even as China's IP economy has boomed in recent years. As a result, the online business remains its primary top-line contributor, accounting for 52.1% of total revenue in the first half of 2026.

The intellectual property market generates money from the creation, licensing, adaptation and merchandising of IP rights. One of the best recent examples of milking such rights for massive profits comes from Pop Mart (9992.HK), which rode the popularity of its characters, led by the wildly popular Labubu, to a dizzying peak market value of more than HK$400 billion last year. That raises the question of why Pop Mart could achieve such phenomenal success, while China Literature, which boasts an equally massive trove of IP and a deep-pocketed parent in Tencent, could lag so far behind.

Commercialization race

Pop Mart’s strategy is built around trendy, visually based art IPs. By leveraging a formidable pop-retail formula and its own supply chain infrastructure, along with trendy marketing gimmicks like its “blind box” format, Pop Mart can create overnight sensations for its IPs. But because its visually oriented IPs trade on aesthetic appeal and creating community among collectors, rather than narrative depth, they remain highly vulnerable to shifting tastes.

By contrast, China Literature's IPs are content-driven. Backed by an extensive library of web novels, its characters possess richer backstories and have deeper emotional bonds with audiences. That said, the company is far less effective than Pop Mart in the trend-making and merchandising arenas. That commercialization gap has led investors to heavily penalize its stock, shrinking its market capitalization to HK$23 billion today — just 20% of its historic peak.

In all fairness, China Literature has produced some smash hits recently, such as the critically acclaimed “Joy of Life” drama series and the chart-topping 2024 domestic blockbuster film “Yolo.” Yet, such stellar performers have failed to move the needle for the company's overall financial performance, largely due to fragmented copyright ownership and opaque profit-sharing mechanisms. Blockbuster box office returns and sky-high viewership don’t automatically translate into lucrative merchandising either, explaining why the stock has remained in a perennial funk.

While China Literature's paid online reading business boasts a deep economic moat, growth for that segment has also hit a bottleneck. During the first half of this year, the division's revenue actually retreated by 7.3% to 1.81 billion yuan, while its active users slipped 5.1% to 134 million. The company’s ability to engineer a meaningful turnaround will ultimately hinge on its ability to successfully pivot to an AI-plus-IP business model.

AI as IP amplifier

Management has made it clear that a key future focus will revolve around finding synergies between IPs and AI. Armed with its huge text library, China Literature has been accelerating efforts to turn those text properties into visual formats, notably by rolling out smash-hit short dramas and AI-animated series. The company developed DramaBuddy, a proprietary AI tool for generating comic-style shorts, to streamline the process. Meanwhile, it has also launched IPBuddy, a system allowing its copyright team to evaluate individual literary works within minutes, greatly boosting the efficiency of IP adaptations and commercialization.

AI is bringing China Literature the ability to both visually adapt text-based works while also singling out IPs with the best commercial potential. Put differently, the company is turning to AI as a crucial amplifier to maximizing the value of its IPs.

Both AI and IP have been hot investor themes lately. A successful transformation from a traditional online reading platform into an IP-driven play could provide some major upside for China Literature’s business. But the company will need to show some stronger growth first, and also detail specific cases that demonstrate how it’s successfully using AI to squeeze more revenue and profits from its rich IP library.

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From European regulatory scrutiny to sudden licensee changes, multinational deals are facing new tests of trust and transparency

Key Takeaways:

• European regulatory scrutiny over JD.com’s Ceconomy acquisition reflects a new phase of geopolitical tension and demands for financial transparency
• Western brands operating in China must overcome deep-seated trust issues and cede control to local partners to survive fierce domestic competition

By Brad Burgess and Doug Young

Whether it's a Chinese e-commerce giant venturing West or a U.S. fashion label going East, cross-border business is increasingly fraught with scrutiny and trust deficits. A major European acquisition by a Chinese retailer recently hit a regulatory speed bump, while an American brand conglomerate abruptly swapped one of its Chinese licensees. Both situations highlight growing friction in international deal-making.

JD.com (JD.US; 9618.HK) thought it had a done deal when it agreed to pay $2.5 billion for German retailer Ceconomy last year. But now it seems it may not be so done after all. The European Commission has opened a full-scale investigation into the purchase, scrutinizing whether the Chinese e-commerce titan received unfair state support, such as preferential financing from state-run banks or tax incentives from the government. It said it will make its final determination by Oct. 1.

We believe this serves as a critical pulse check on EU-China relations and might be the harbinger of broader regulatory scrutiny from the EU and Germany. The EU's relatively new foreign subsidies regulation is clearly being used as an additional measure outside standard anti-monopoly rules. In a previous case, a Chinese railroad company proactively pulled out of a public tender in Bulgaria after its ridiculously low bid sparked immediate red flags over state subsidies.

That withdrawal was seen as a victory for the new regulation. But applying this tool to a private company rather than a traditional state-owned enterprise is a noteworthy extension of this scrutiny. JD.com has been aggressively pursuing retail assets across Europe, making this regulatory obstacle even more significant for future M&A.

The geopolitical climate adds to the friction. Germany — where Ceconomy's MediaMarkt and Saturn chains are based — was traditionally conciliatory toward China under former Chancellor Angela Merkel. Today, political concern is mounting, and the dialogue between the EU and China isn't where it was before. If the EU vetoes this deal, China will likely complain of discrimination, claiming its companies are being targeted, and vow to protect its rights. That inevitably ends in retaliation, perhaps targeting European exports like champagne, cognac, or brandy.

The crux of the problem lies in how state support is disclosed. Current Chinese financial statements contain vague disclosures, often bundling financial incentives with other investment gains and losses. Anyone receiving financing from a state-run Chinese bank is technically getting government support. However, defying Beijing by explicitly detailing that government support is like playing with fire, as China routinely denies offering such subsidies. We're curious to see if Western regulators will push companies to be more forthright and specific in their material disclosures moving forward.

Letting go of the reins

On the flip side, Western companies operating in China face their own set of hurdles. U.S. company Authentic Brands, which owns major labels like Reebok, Eddie Bauer, and Brooks Brothers, made recent headlines when it abruptly dumped the China licensee for its Nautica and Spyder brands. Following the announcement, shares of the dumped partner, Tristate Holdings (0458.HK), tanked about 15%.

This kind of partner shifting is a relatively common shortcut for major Western brands to develop the China market. However, identifying a capable partner with enough breadth and execution capability to adapt a product for local tastes is easier said than done. We saw a similar situation recently when Nike (NKE.US) made major changes to its China licensing agreement with long-time partner Topsports (6110.HK), whose stock also tumbled after losing authorizations for online sales.

Decades-long relationships evaporate in some cases, highlighting the extreme fragility of these partnerships. We think multinational companies suffer from a profound trust problem. To succeed, they need to let go a bit and trust their Chinese partners more. Local operators understand the rapidly changing Chinese consumer landscape far better than a remote headquarters ever could. Local managers often complain that running everything through headquarters takes too much time and makes them less competitive. Yet, ceding control and allowing a brand to morph for local tastes — like Yum China (YUMC.US; 9987.HK) successfully offering pizza with corn and shrimp — is deeply uncomfortable for many top multinationals.

While top-tier global brands might still command loyalty among brand-conscious urbanites, mid-tier labels face fierce competition from local players. For investors evaluating these publicly traded partners, diversification is key. If a local licensee is heavily dependent on a single Western brand, the risk of a sudden breakup should prompt extreme caution. Investors must do their homework to understand the importance of each brand relationship.

Ultimately, the ones who do best in China are those willing to let go. The way a business is promoted and operated needs to be flexible and modified according to actual conditions in the Chinese market.

The power tool maker’s first-half profit beat market expectations, sending its stock soaring as its market capitalization passed $33 billion

Key Takeaways:

• Techtronic reported its gross profit margin rose to a historic high of 42.9% in the first half of the year, extending an 18-year streak of gains
• The power tool maker’s free cash flow surged 61% to $753 million during the six-month period

By Cheng Shui Tong

Leading global power tool maker Techtronic Industries Co. Ltd. (0669.HK) has powered its way to another strong financial report, banking on profitability of its Milwaukee consumer brand, improvements to its global manufacturing business, and continued benefits from tariff mitigation measures.

The company’s financial results for the first half of 2026, announced last week, show its revenue grew by a modest 5.9% to $8.3 billion during the six-month period. Its net profit rose by a stronger 17.5% to $738 million, powered by a 258-basis-point improvement in its gross margin to 42.9%.

Techtronic’s financial position also remained strong, as it generated free cash flow of $753 million during the period, up 61% from the same period last year. That helped to boost its cash on hand to $1.89 billion by the end of June, up 13.1% from a year earlier.

The humming business prompted the company to raise its business targets. After recording an earnings before interest and taxes (EBIT) margin of 9.9% for the first half of the year, management said it is confident of reaching an internal target of 10% in 2027, with further improvements expected in 2028 and beyond. The company also raised its 2026 free cash flow target from $1 billion to over $1.3 billion.

Stock at four-year high

Techtronic’s stock jumped 8% the day after the announcement to HK$143.80, a four-and-a-half-year high, prompting upgrades by some investment banks. Nomura was one of the most bullish, raising its target price from HK$163 to HK$173, reflecting the company’s accelerating shift towards its higher-margin brands such as Milwaukee.

One of Techtronic’s most impressive metrics has been its gross margins, which have grown for each of the last 17 years from around 30% in 2009 to 41.2% last year. The 42.9% figure for the first half of 2026 makes it likely the company will keep that streak alive. Such a long run looks impressive for anyone, reflecting management’s ability to keep adapting to changing market conditions with new products and manufacturing strategies.

Techtronic’s history dates back more than 40 years to its establishment in 1985 with just $20,000 in investment from German entrepreneur Horst Julius Pudwill and Hong Kong industrialist Roy Chung. The company began with a manufacturing plant in Dongguan, not far from the Hong Kong border with Mainland China, in the early days as the Pearl River Delta was just starting to emerge as a manufacturing hub. It initially produced Craftsman-brand power drills as an original equipment manufacturer (OEM) for American retail giant Sears, earning Roy Chung the moniker “King of Power Drills.”

As the business expanded, the company was listed in Hong Kong in 1990. In search of higher margins, it soon decided to abandon its OEM model in favor of the more profitable business of developing its own brands. That led to its 2000 acquisition of Ryobi's North American power tool business. From there it acquired the century-old American vacuum cleaner brands Royal and Dirt Devil in 2003. Its most successful acquisition came in 2005 when it bought Milwaukee, a premium U.S. professional power tool brand that took it into the high-margin industrial and professional construction markets.

Cordless product transition

Techtronic subsequently decided to abandon corded tools in favor of cordless products powered by lithium-ion batteries, kicking off a period of explosive growth. In 2019, it was included as a constituent stock of the benchmark Hang Seng Index. Its business has continued to grow ever since, as the company boosted its margins by gravitating towards higher-end products.

Over its four-decade journey to the present, Techtronic has provided a potent combination for investors with its stable profit growth and high dividend payouts. Following its latest rally, the company is now worth more than HK$260 billion ($33 billion), making it first in its class among power tool stocks.

Other highly valued Hong Kong industrial stocks include names like Kingboard Laminates (1888.HK) and semiconductor firm ASMPT (0522.HK), whose shares both embarked on major rallies this year fueled by AI associations, only to later give back much of the gains. More comparable peers include names like VTech Holdings (0303.HK) and Johnson Electric (0179.HK), whose shares have been more stagnant due to their association with traditional electronics.

AI concept stock?

Techtronic has an AI angle as well. JPMorgan previously issued a report saying the company’s products are an indispensable component in the construction supply chain for AI data centers, and its Milwaukee brand has been designated by numerous major contractors for use in construction of such centers. Despite that, investors didn’t pick up on the AI theme, buffering the company from the wild gyrations seen by many AI concept stocks lately.

While investors are generally optimistic about Techtronic’s prospects, the company still faces a degree of uncertainty. Its primary market is North America, which subjects it to changes in U.S. trade policies, and more broadly to the U.S. economy. That means factors like new home construction could affect the company's sales.

What’s more, the stock currently trades at a relatively rich price-to-earnings (P/E) ratio of 28 after its recent rally. That could sideline some investors who might otherwise like the company, leaving them waiting for a potential pullback before buying.

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The Shenzhen printer maker built a global consumer hardware business, but a shifting tide away from low-cost models towards greater ease of use is forcing it to go upmarket

Key Takeaways:

• Creality expects to report a loss for the first half of 2026, as higher marketing, R&D, product upgrade and inventory costs pressure its margins
• The company’s challenge reflects a broader shift in consumer 3D printing, where competition is moving beyond cheaper hardware toward easier-to-use products

By Hu Minghe

A year ago, Shenzhen Creality Technology 3D Technology Co. Ltd. (3388.HK) was printing up a classic success story as one of China’s most promising consumer hardware stories. The Shenzhen company had spent a decade making 3D printers affordable enough for hobbyists, designers and small businesses around the world.

But just months after its May IPO, Creality is facing a more difficult challenge: proving that rapid expansion can translate into sustainable profits in such a fast-moving market.

The company said last Thursday it expects to report a loss of 53 million yuan ($7.4 million) to 63 million yuan for the first half of 2026, reversing a profit of 107.5 million yuan a year earlier. It expects to report an adjusted net loss of 10 million yuan to 20 million yuan for the period.

The warning followed a 182 million yuan loss in 2025, as the company swung into the red in the second half of the year. It said the pressure behind its latest loss came from higher R&D spending, overseas promotions, product upgrades, inventory clearance and foreign exchange losses caused by the yuan’s appreciation.

The warning marked a strong wakeup call for investors who initially embraced the company. Creality priced its IPO shares at HK$18.80 in May, and the stock opened its first trading day at HK$33.88, before closing up a more modest but still respectable 21% at HK$22.80. The shares closed at HK$23.16 on Monday, still above the IPO price but well below the initial market excitement.

The mixed performance reflects a broader shift in China’s 3D-printing sector. Investors remain interested in the industry’s potential, but are increasingly focused on whether companies can build profitable businesses rather than simply sell more machines. Creality’s recent move into the red shows that may be easier said than done.

Analysts still expect Creality’s revenue to continue growing in 2026, with the average forecast calling for sales of about 4.34 billion yuan, up roughly 39% from 2025, according to Yahoo Finance. The forecast suggests demand remains healthy, but the key question is whether Creality can capture that growth and remain profitable.

From affordable printers to a global business

Founded in Shenzhen in 2014, Creality built its early success by making consumer 3D printers affordable. Its CR-10 and Ender series became popular among hobbyists by offering large printing areas and strong hardware capabilities at prices below traditional competitors. But the industry has moved beyond the simple low prices that were one of Creality’s biggest strengths.

The company went public after building a sizeable global business. It generated 3.13 billion yuan in revenue in 2025 and sold products across more than 140 countries and regions. For investors, that scale alone was attractive.

But its financial performance also highlights the challenge of scaling a hardware company. Its revenue increased 36.7% last year to 3.13 billion yuan, but its adjusted net profit fell to 92.4 million yuan. Its adjusted net profit margin has fallen steadily from nearly 7% in 2023 to around 3% last year.

Creality’s core printer business remains its largest source of revenue, generating 1.78 billion yuan in 2025. But revenue growth has increasingly come from higher-priced products rather than simply selling more machines. Reflecting that, the company’s annual printer shipments actually fell from about 842,000 units in 2022 to about 742,000 in 2025, even as printer revenue nearly tripled over the same period. The shift reflects Creality’s move toward more advanced models with higher average selling prices.

That trend matters because the global consumer 3D-printing market is expected to expand significantly in coming years. The challenge for Creality is capturing some of that growth through higher-value products rather than relying on its traditional strength in high hardware volumes at low prices.

Cost of competing globally

Creality’s profit warning reflects the rising cost of becoming a global consumer brand. Its selling and marketing expenses jumped 48.8% in 2025 to 570.1 million yuan, faster than revenue growth and equal to 18% of its revenue. The spending covers overseas sales teams, influencer campaigns, e-commerce promotions, direct-to-consumer channels, customer service and warehouse operations.

Creality has been moving closer to overseas customers through online direct sales, which typically carry higher margins by cutting out middlemen. Direct online sales accounted for 48.5% of its revenue in 2025, up from 40.9% a year earlier.

That strategy can strengthen brand recognition over time and boost margins, but also requires significant investment. Unlike a traditional exporter that relies mainly on distributors, a direct-to-consumer model requires companies to pay for traffic, logistics, inventory storage and after-sales support, not to mention marketing to promote its self-operated channels.

Inventory has also become a challenge as competition accelerates. As 3D-printer makers introduce faster and more advanced machines, older models can quickly lose appeal. As that happened, Creality reported its inventory turnover days grew from around 81 days in 2023 to about 98 last year. The company cited inventory clearance as a factor behind its latest profit warning, showing inventory management remains a challenge.

The Bambu Lab challenge

The competitive landscape has also changed dramatically since Creality first rose to prominence on its affordability. Newcomer Bambu Lab, founded just six years ago, also in Shenzhen, has led that charge by changing consumer expectations with its focus on convenience and user experience.

Founded by former engineers from drone giant DJI, Bambu Lab introduced printers with automatic calibration, faster speeds, multicolor printing and a smoother software experience. Those qualities cater to today’s users who no longer simply look for the cheapest machine and are more interested in starting to print without hours of setup and troubleshooting.

According to Creality’s IPO prospectus, the company ranked second globally in consumer 3D-printer gross merchandise value (GMV), with 11.2% of the market, behind only Bambu Lab. Other Chinese competitors, including Anycubic and Elegoo, continue competing aggressively in lower-priced segments, adding further pressure on margins.

To better differentiate themselves and cater to easier usability, the industry is increasingly becoming a battleground over ecosystems rather than hardware alone. Creality is responding by expanding its Creality Cloud, developing AI-assisted printing tools and working on technologies to make printing easier for beginners.

The goal is not just selling printers, but also keeping users engaged post-sale by making products easy to use. Creality’s founders succeeded in their first mission: making 3D printers accessible to millions. But the race is no longer simply about who can make the cheapest machine, but rather who can turn a piece of hardware into a lasting consumer ecosystem.

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The food and drink maker’s bottom line growth in an increasingly competitive environment spotlights the company's durability

Key Takeaways:

• Uni-President reported its profit for the first half of the year rose by 9% to 1.4 billion yuan, though its revenue rose just 1.4%
• Revenue from the company’s flagship beverage business declined slightly during the six-month period

By Lau Chi Hang

China’s population of 1.4 billion may translate to the world’s largest national appetite. But that doesn’t necessarily translate to booming business for its thousands of food and drink makers duking it out for a place at the table. In such an environment, even powerhouses like Wahaha, built by China’s former richest man Zong Qinghou, can vanish from Chinese supermarket and convenience store shelves almost overnight.

Given that rapid state of flux, any company that can maintain its position over three decades looks truly remarkable — and Uni-President China Holdings Ltd. (0220.HK) has emerged as a survivor in that sense. The company’s financial results for the first half of 2026, released last week, show its revenue rose by a marginal 1.4% year-over-year to 17.32 billion yuan ($2.57 billion). But its profit rose by a healthier 9% to 1.4 billion yuan.

Among its two major operating segments, revenue from its larger beverage business declined by 0.3% year-on-year to 10.75 billion yuan. But that was offset by the food business, which rose 4.7% to 5.63 billion yuan.

Chairman Lo Chih-Hsien's deserves credit as the steady hand behind his long-established company’s ability to maintain its place in the market. Since taking over at Uni-President’s helm from his father-in-law and company founder Kao Ching-yuen in 2013, Lo has spent the last 13 years moving in step with the times of China’s rapidly evolving food and beverage preferences, even if its modest growth hasn’t made it a flavor of the day among investors.

Those investors have given the company a conservative trailing price-to-earnings (P/E) ratio of just 13 times, lagging the 20 times for instant noodle maker Nissin Foods (1475.HK). A faster growing field of specialty snack sellers are even more popular among investors, with Busy Ming Group (1768.HK) trading at 38 times and Liuliumei (6658.HK) at a sky-high 66 times – a level often reserved for hot tech startups.

Beverage business under pressure

Its tepid valuation may partly owe to the fact that Uni-President's business is indeed under some pressure. Its core beverage segment must regularly defend its turf from newer brands constantly testing the latest flavor fads. Uni-President hasn’t been completely unscathed from those attacks, reflected in the slight decline for its beverages business.

As consumers become increasingly health-conscious and scale back on sugary drinks, Uni-President's iced black tea and fruit juice lines have come under particular pressure. Seizing on those trends, leading bottled water seller Nongfu Spring (9633.HK) has aggressively expanded its Oriental Leaf sugar-free tea brand in recent years, hitting a sweet spot of consumer demand. Uni-President also offers its Chai Li Won line of tea-based drinks, but the brand accounts for a limited share of the company's beverage revenue. Compared with Nongfu’s tea drink sales of more than 10 billion yuan in its latest half-year period, Uni-President is quite the tea peewee.

The bottled beverage market is also under assault from the explosion of bubble tea shops in recent years. New chains like Mixue, Chagee and Chabaidao have sprouted up like weeds, with China home to an estimated 400,000 such shops by the end of last year. The country’s new middle class with extra money in their digital wallets no longer minds spending a bit of that pocket change for a cup of better-tasting fresh bubble tea. Consumers can obtain those drinks more easily than ever thanks to a boom in food delivery platforms, further challenging traditional bottled beverages that are a convenience store staple.

Instant noodle image crisis

On the food side, Uni-President's staple is instant noodles. But following many years of steady growth through iterations of all shapes and sizes, that market has slowed considerably as today's consumers chase healthier options and increasingly view instant noodles as junk food. Many now believe such products are harmful when eaten over the long term, and put more focus on fresh foods, which can be ordered online and quickly delivered, often within an hour. Such speed is rapidly undermining the time-saving and fast-food advantages instant noodles enjoyed for years, causing demand to stagnate.

At the same time, competition within China’s instant noodle market remains fierce. Ting Yi ’s (0322.HK) Master Kong instant noodle brand has long been the market leader, with Uni-President trailing close behind. Its runner-up position also means that Uni-President is more vulnerable to attack from a more recent wave of latecomers to the instant noodle market. One of the more successful is Baixiang Food, whose market share has surged from 5.9% in 2021 to 15% in the first half of last year, rapidly encroaching on Uni-President's 18% at the end of that period. That means that even the slightest misstep could cause Uni-President to be overtaken by this newer, aggressive rival.

Rising costs

Then there’s the question of production costs. Uni-President has managed to boost its gross margin over the last two years, largely on falling raw material costs. Among its two major segments, plastic bottles account for 20% and 30% of costs for the company’s beverages. Therefore, polyethylene terephthalate (PET) — the raw material used to make plastic bottles — is one of the most critical factors influencing the company’s costs.

Between 2023 and 2024, the price of PET fell from between 8,000 yuan to 10,000 yuan per ton, to just 6,000 yuan and 7,000 yuan, bringing substantial cost savings. However, the U.S.-Iran war has led to higher oil prices, which has translated to higher PET prices, since plastics are a petroleum product.

Despite such uncertainties, Uni-President's financial position is quite strong. The company has no long-term borrowings, and while its current borrowings stand at 2.52 billion yuan, it had 1.61 billion yuan in cash at the end of June. The company’s turnover days for trade receivables and inventory are both relatively low, with the former falling from seven days last year to six days in the first half of 2026, while the latter was unchanged at 35 days.

The bottom line is that Uni-President won’t win over any investors for its fast growth in China’s fiercely competitive food and drink market. But given its deep cash reserves and historical ability to navigate a highly competitive and fast-moving Chinese market, its stock could still be attractive for its dividends and durability.

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The operator of bubble tea franchises has accelerated its expansion into urban areas beyond China’s main cities, driving a 42% jump in first-half revenue

Key Takeaways:

• Auntea Jenny added nearly 1,700 outlets on a net basis in the first half, with the store count in third- and lower-tier cities growing nearly 46%
• Core margins held steady and the next test will be whether the store ramp-up can deliver a greater profit boost

By Lee Shih Ta

For China’s milk tea chains, reaching the milestone of 10,000 outlets used to be seen as clear proof of expansion potential. But store count alone is no longer enough to assure investors about future growth.

As a host of beverage chains have converged on the Hong Kong equity market, among them Mixue Group (2097.HK), Guming (1364.HK) and Chabaidao (2555.HK), so performance expectations have risen, and tea brands need to show where their next phase of growth will come from.

For many, that means turning their focus from the largely saturated markets of major Chinese cities to the smaller urban centers where rents and operating costs are lower. One chain competing in that battleground, Auntea Jenny (Shanghai) Industrial Co. Ltd. (2589.HK), accelerated its rollout in third- and lower-tier cities in the first half of this year, according to its latest earnings report.

Auntea Jenny serves up milk teas and fresh fruit beverages with a mid-priced business model. Its franchised store count jumped nearly 1,700 on a net basis in the first half, helping to lift revenue 42.4% to 2.59 billion yuan ($384 million), while profit for the period grew 58.3% to 321 million yuan. Adjusted profit for the six months rose 41.6% to 345 million yuan from the year-earlier period, broadly in line with revenue growth, while the adjusted profit margin remained at around 13.3%.

Net profits enjoyed an extra lift, outpacing revenue, as the year-earlier period included expenses related to its listing that were absent this time. Share-based payment costs also declined and the effective tax rate fell to 22.7% from 27.6%. The company’s gross profit margin remained at around 31.6%, while administrative expenses edged up 2.3%, suggesting that some back-office costs were spread over a larger revenue base. But spending on sales and marketing jumped 56.1%, with expenses for marketing and promotion nearly doubling, offsetting some of the benefits of scale.

Doubling down in smaller cities

The standout feature was a rapid expansion of the franchise network in lower-tier markets. The firm opened 2,253 franchised stores in the first half, up 149% from a year earlier, while closures fell 13.8% to 556. That resulted in 1,697 net additions, more than six times the year-earlier figure. By the end of June, the company had 13,155 stores under its brand, a year-on-year rise of 39.4%.

In third- and lower-tier cities the store count rose 45.6% to 7,022, taking the share of the total to 53.4% from 51.1%. With its mid-priced strategy, Auntea Jenny is focusing on expanding its footprint in lower cost markets, swerving the cut-throat competition for tea drinkers in China’s biggest cities.

The net jump in outlets suggests that the franchise model is enjoying growing appeal, as the company welcomed 1,625 franchisees during the period, more than double the year-earlier number.

Auntea Jenny makes most of its money from selling ingredients, packaging and equipment to franchisees. Income from sales of goods to franchisees rose 41.6% to 2.08 billion yuan in the first half and, together with related services, accounted for more than 95% of turnover. With revenues and stores growing in tandem, the new franchises look to be the company’s main growth driver.

Pursuing economies of scale

However, the momentum has not flowed through to core profit margin, which edged up to 31.6% in the first half from 31.4%, while the adjusted margin slipped to 13.33% from 13.40%. Administrative expenses as a percentage of revenue fell to 3.7% from 5.1%, indicating that those costs are starting to be spread over a larger revenue base. But selling and marketing expenses rose to 11.3% of revenue from 10.3%, offsetting most of the benefits.

As the network expands, the company’s ability to achieve economies of scale while keeping a lid on marketing expenses will determine whether store growth can translate into better margins.

Cash generated from operating activities rose 28.7% to 287 million yuan, lagging overall earnings growth but still equivalent to around 90% of profit for the period. As of the end of June, the company held 1.40 billion yuan in cash and bank deposits and had just 18.6 million yuan in bank borrowings, giving it a substantial buffer for continued expansion and investment in its supply chain.

Auntea Jenny’s shares jumped 10% in the first session after the earnings release, as investors welcomed the figures. The stock has gained about 34% in the year to date to trade at HK$113.90, slightly above its HK$113.12 offer price in May last year. Auntea Jenny trades at about 16.7 times annual earnings, below Guming’s 18.5 times but above the 12.3 multiple for Mixue Group.

Auntea Jenny has shown that its franchise model can be popular in smaller urban centers that still have room to accommodate further outlets. As its store count in those locations surpasses 7,000, investors will increasingly focus on whether the pace and quality of expansion can be sustained, and whether the scale can translate into higher margins and stronger cash flow. If the company can deliver on those fronts, its valuation could still have some room to rise.

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The traditional gold craftsman’s stock tumbled after an earnings forecast last week showed its revenue and profit plunged in the second quarter compared with the first

Key Takeaways:

• Laopu Gold said its revenue rose sharply in the first half of this year, but the figure dropped sharply from the first quarter to the second as gold prices retreated
• Investors believe gold prices are unlikely to rebound to record highs from the beginning of the year in the second half of 2026

By Lau Chi Hang

It’s sometimes called the “Hermes of gold jewelers,” thanks to an upscale image centered on high craftsmanship for its premium gold products.But Laopu Gold Co. Ltd. (6181.HK) lost its shine for investors last Tuesday, as its stock tumbled 24% in a single day, wiping out HK$16.7 billion ($2.14 billion) in market value.

The fall came after the company issued what looked like an upbeat profit alert after the market closed the previous day, saying it earned 19.8 billion yuan ($2.92 billion) to 20.45 billion yuan in the first half of 2026, up 60% to 66% year-on-year. Even better, the company said its non-IFRS profit reached 4.31 billion yuan to 4.36 billion yuan, up 83% to 85%.

So, why did investors flee in the face of such seemingly solid financials? The reality is that sky-high expectations were already priced into the stock. And while the headline numbers looked impressive, some calculations using previously announced data showed the company’s revenue and profit both plunged 80% in the second quarter compared with the first.

Meteoric gains

Many may argue the selloff was inevitable. The stock was on a tear in the first year after Laopu sold shares for HK$40.50 apiece in its June 2024 Hong Kong IPO. It rose 27 times at one point to a high of HK$1,108 last July, giving it a meteoric price-to-earnings (P/E) ratio of 144 times.

The company's growth in its first two years post-listing was indeed eye-catching, and may have justified the run-up to some extent. Its profit in 2024 rose 254%, and climbed another 230% to 4.87 billion yuan last year, creating huge expectations for similar growth ahead. In that context, it’s not difficult to see why the 83% to 85% growth in the first half of this year probably left many investors disappointed.

To understand why Laopu fell so heavily, we need to look at why its stock rose so sharply in the first place.

Traditional jewelry shops in China typically base their prices on the cost of gold, plus a mark-up to cover overhead and leave them with some profits. Such mark-ups were traditionally low, meaning jewelry prices were often close to the value of the gold they contained, limiting gross profit margins for jewelers.

But Laopu, like other famous designer brands, operated on a different model. Its pricing wasn’t determined simply by the price of gold, nor did it rely on simple markups for profits. Instead, it charged much bigger premiums for its products, selling itself as a master gold craftsman. Consumers are typically willing to pay such high markups because the brand isn’t merely an expression of taste, but also a status symbol.

More than simple gold

Laopu Gold boss Xu Gaoming understood such logic and built his company around it. While the company's name literally means “old shop” he was never content with simply running a traditional gold jewelry outlet. Instead, he set his sights on building a famous brand that could bring him greater profits, eschewing a more traditional generic gold-selling model practiced by older chains like Chow Tai Fook (1929.HK) or Luk Fook (0590.HK).

His strategy centered on using ancient techniques, including inlaying, engraving, hammering, chasing, and filigreeing, combined with innovative technology to create unique products that could stand out from more generic ones in traditional shops. The company went a step further by saying its products were made using methods from China’s imperial courts, adding an element of royalty to their cache.

As its reputation and brand gained traction, the company steadily raised its prices over the past two years, facilitating the meteoric profit gains. Consumers increasingly saw its products as not only fashion statements, but also investments that could retain and even appreciate in value regardless of day-to-day gold prices.

This strategy was initially effective, as reflected by Laopu’s strong triple-digit profit gains over the last two years and surging stock. But maintaining that kind of momentum is difficult and, sensing that, some investors began profit taking last year as the stock began to look overpriced.

At the same time, traditional gold jewelers like Chow Tai Fook and Luk Fook were outshining Laopu in terms of their store networks and operating history. Yet their P/E ratios stand at a mere 7 to 13 times, now similar to Laopu’s current ratio of about 10 after its recent declines. Even if its results had more shine, Laopu is still a traditional consumer company at the end of the day, and not in AI or other high-tech sectors that have become investor favorites.

High inventory, falling gold prices

Making matters worse for Laopu and its more traditional peers are the latest gold price trends. Prices have been dropping steadily after peaking at around $5,600 per ounce at the start of the year, falling below $4,000 at one point last month. While Laopu is less sensitive than its peers to the price of gold, the precious metal is ultimately still its biggest cost. A continuation of falling prices would almost certainly scare away consumers, worried that today’s purchase may quickly lose value if the trend continues.

That could be a factor behind the company's rapidly growing inventory. Its inventory stood at 4.09 billion yuan by the end of 2024, and surged nearly fourfold to 16 billion yuan by the end of last year. At the same time, its inventory turnover days reached a lengthy 216 days. Such high inventory levels are less of a problem when gold prices are rising, since such assets naturally rise in tandem. But the current environment is pressuring the company to sell down some of its gold stockpile before prices drop even further, which is a major factor pressuring its stock.

Given the uncertain outlook for both Laopu and gold, investors are naturally becoming more conservative about the company in the second half of the year, with low expectation for gold prices to return to their earlier highs.

In announcing its second-quarter financials last month, gold mining giant Newmont (NEM.US) only maintained its full-year guidance, indicating a gold price of about $4,500. The World Gold Council was less bullish, forecasting that gold prices would hover around the $4,100 level. Prices could start to rise again if economic or geopolitical situations deteriorate, or if interest rates fall, which could lure long-term capital back into the markets for gold and related stocks. But such a trend is far from certain

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Regulators have ordered China’s top online travel platform to pay more than $780 million after an anti-monopoly probe, but the firm’s wider business is left intact 

Key Takeaways:

• Trip.com is required to end exclusivity deals and other anti-competitive tactics in its hotel dealings, potentially weighing on future earnings
• But regulators stopped short of mandating a breakup of Trip.com businesses or requiring the sale of its stake in the Tongcheng Travel platform

By Lee Shih Ta

China’s market regulator has told the country’s leading online travel platform to pay heavy fines and clean up its act. But executives and investors were still able to breathe a sigh of relief that the antitrust penalty was not even worse.

Trip.com Group Ltd. (TCOM.US; 9961.HK) must stump up about 5.3 billion yuan ($783 million) in fines and refunds, while undertaking steps to “rectify” its business. But the company was spared the structural measures most feared by the market, including a breakup of its business or divestment from industry peers.

With the worst-case scenario off the table, Trip.com’s Hong Kong-listed shares leapt 7.7% after the outcome of the six-month probe was announced, before closing the session 3.79% higher at HK$355.60. However, the ruling could have a long-lasting impact on Trip.com’s hotel-related income, flowing through into earnings.

Regulators found that Trip.com had abused its dominant position in China’s market for online hotel bookings since 2020. Through platform rules, traffic allocation and technical tools, the company pushed some hotels into exclusive terms and imposed price limits on those operating on multiple platforms, restricting their scope to freely set rates and choose sales channels.

The regulator imposed a fine of 3.52 billion yuan, equivalent to 7.5% of Trip.com’s China revenue in 2025, and confiscated nearly 1.66 billion yuan in gains from the irregular practices, bringing the penalties to just under 5.18 billion yuan. The company must also refund 122 million yuan in security deposits taken from hotel operators, putting its total liability at about 5.3 billion yuan.

In a statement on July 27,Trip.com said it accepted the decision by the State Administration for Market Regulation, vowing to comply with all the requirements and strengthen its governance mechanisms.

The 7.5% fine was higher than the 4% imposed on Alibaba Group (BABA.US; 9988.HK) and the 3% levied on Meituan (3690.HK) in their 2021 antitrust cases. Still, Trip.com has plentiful resources to settle its bill, sitting on 104 billion yuan in cash, deposits and financial investments at the end of March.

The one-off financial hit is less significant than the repercussions for Trip.com’s business model. The company will stop requiring exclusivity deals with hotels, remove its lowest-price-across-all-platforms requirements, discontinue certain pricing tools and refrain from changing room rates without hotel consent. Its existing mechanisms for traffic allocation, fees and commissions will also need to be redesigned.

Together, those tools formed the moat around Trip.com’s hotel business, limiting its accommodation partners’ room for maneuver and curbing the competitive power of rival platforms.

Following the changes, hotels will have greater freedom to allocate rooms and set prices across travel sites and lifestyle apps such as Meituan, Fliggy and Tongcheng Travel (0780.HK). Trip.com is unlikely to lose its market-leading status any time soon, but its competitive edge will increasingly depend on member loyalty, technological prowess, customer support and the ability to convert interest into bookings, rather than price and traffic controls.

Trip.com CEO Jane Sun said automated pricing tools were already switched off in March, with an impact on the company’s second-quarter outlook. She also acknowledged that the firm’s financial performance could fluctuate during the transition to the new partnership model.

Empire left intact

Accommodation reservations rank as Trip.com’s biggest source of revenue, totaling 26.1 billion yuan in 2025, or about 42% of total turnover. The booking income rose another 17% to 6.5 billion yuan in the first quarter from the same period a year earlier. If the new model cuts commission rates or forces greater spending on hotel subsidies and marketing, margins in the accommodation business could be squeezed even if volumes keep growing. Analyst estimates compiled by Visible Alpha show Trip.com’s adjusted net profit could fall 15% to 13.5 billion yuan in 2026.

The anti-monopoly probe, which began in January, sparked concerns that Trip.com might be forced to sell off stakes in other travel businesses, diluting the power it has built up through M&A and investments in the industry. But the regulatory ruling focused only on hotel partnerships, pricing and online traffic. Trip.com was not required to sell its interest in Tongcheng Travel, a digital platform. Nor was it ordered to spin off the travel site Qunar, accommodation reservations or transportation ticketing. Regulators appear to have focused on correcting business practices rather than restructuring the company.

Trip.com still owns about 24% of Tongcheng Travel, which could expand its business network with the removal of restrictions on hotel partnerships. A more immediate challenge will come from Meituan and Fliggy. Trip.com still controls about 56% of mainland China’s online travel market, but once hotels are free to offer the same rooms and prices across platforms, rivals can leverage their vast user traffic and extensive local-services ecosystems, chipping away at Trip.com’s dominance.

Trip.com currently trades at about 14 times forward earnings, above Tongcheng Travel’s 7.7 times and slightly higher than the roughly 13 times for Expedia (EXPE.US), indicating that investors are still willing to pay a premium for its industry position, membership base and international business.

That could continue if growth in booking volumes and profits is sustained during the rectification period. But the upside for the stock will be limited if falling commission rates, fiercer competition and rising costs weigh on earnings. Trip.com has preserved its corporate structure, but whether it can hold into its valuation will depend on its results in the quarters ahead.

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The leading fruit seller returned to profitability and revenue growth in the first half of this year, as its chairman declared 2026 a ’year of rebirth’

Key Takeaways:

• Shenzhen Pagoda earned a profit of 20 million yuan or more in the first half of 2026, reversing a loss a year earlier, as its revenue grew 7%
• The return to profits and revenue growth comes after the leading fruit seller posted a 20% revenue decline last year and closed 1,625 stores between 2023 and 2025

By Edith Terry

China’s largest fresh fruit retailer, Shenzhen Pagoda Industrial (Group) Corp. (2411.HK), has offered up an attractive financial fruit basket for investors, with budding signs of a comeback after two years of declining revenues and steep losses. It presented that picture in a positive profit alert last week, showing it returned to profitability and revenue growth in the first half of 2026, reversing its recent string of bad years.

The report offers some of the first hard evidence of a turnaround since Chairman Yu Huiyong told 700 suppliers at a meeting in April that his company’s restructuring was a success and officially designated 2026 as a “year of rebirth.”

According to the latest announcement, Pagoda expects to report 7% revenue growth and a profit of 20 million yuan ($2.9 million) or more in the first half of 2026, reversing a 342 million yuan loss a year earlier.

Pagoda said it added a net 292 new stores to its network during the period. It also credited the turnaround to other adjustments, including its use of fruit industry-specific large language models, an AI-driven order system and the addition of snacks in some of its traditional fruit stores. It said it has also started offering supply chain services to third parties.

The numbers were impressive less because they represented strong growth or profitability, and more because they reversed the string of revenue contraction and losses, as well as a record-low gross margin of 7.3% last year. Now, the big question is whether those trends can be sustained.

Signs of rebound

The nascent recovery is finding some believers in the analyst community. Citic Securities, which recently upgraded Pagoda to a “buy” rating, said the company is poised to return to a growth trajectory. In a research report in April, it noted the company began expanding its store count in the second half of 2025 with the addition of 82 new stores. It added Pagoda’s order volume and gross profit both grew by mid-single digits during that time, as its gross profit margin recovered to 10%.

Cost cutting has been an important part of Pagoda’s turnaround. The company shaved more than 20% off its expenses last year, including cuts in its selling, administrative and R&D expenses of 11.6%, 38.3% and 22.9%, respectively.

A big part of the savings came from the contraction of Pagoda’s core network of fruit stores. That network grew from 4,307 to 6,093 stores between 2019 and 2023, with 80% of those run by franchisees. But the company has been rapidly paring that network over the last two years to weed out underperformers, mostly franchised outlets, leaving it with 4,468 stores at the end of 2025.

Pagoda says the loss of franchisees was intentional, part of a restructuring where stores in expensive locations or with weak sales were encouraged to drop out. Pagoda’s premium price strategy also ran head-on into a slowdown in consumer spending that has persisted since a brief post-Covid rebound.

Pagoda isn’t the only one suffering in China’s large but also challenging market for fresh fruit. Three giants dominated that market just a few years ago when the economy was still on relatively solid footing. Pagoda, alongside Hongjiu Fruit and Xianfeng Fruit, collectively feasted on a market that grew by 25% from 1.2 trillion yuan in 2021 to 1.5 trillion yuan in 2025, according to the Qianzhan Industry Research Group.

But the boom was followed by bust, as Hongjiu buckled under excessive debt and Pagoda struggled with the high costs of supplying its ever-expanding store network with both standard and exotic fruits at premium prices. At one point, Pagoda boasted it would make annual revenue of 100 billion yuan from a network of 30,000 stores in 10 years – something that now looks impossible given its revenue of just 10.3 billion yuan last year.

Business diversification

After Hongjiu Fruit was delisted from the Hong Kong Stock Exchange in December 2025, Pagoda appeared in danger of heading in a similar direction, burdened with weak sales, competition from online and community vendors, and a premium approach to fruit merchandising that drove away customers and franchisees as Chinese consumers became more frugal.

As recently as August 2025, Chairman Yu, who started his company in 2001 with just 400 yuan in his pocket, insisted Pagoda’s role was to educate consumers, not to pander to them.

Like Hongjiu before it, Pagoda has been scrambling to rescue its business partly through diversification. In addition to its franchised and self-operated stores, it has developed more online collaborations with other platforms and a B2B unit that sells to supermarkets and wholesalers. It also operates a software as a service (SaaS) platform, Shenzhen Banguo, for independent mom-and-pop fruit stores.

According to Citic Securities, the company has developed a “dual-engine” model of “customer traffic” products, including free items, together with its higher-margin businesses to restore profits. Its AI system now covers 3,000 stores for intelligent ordering and diagnostics, driving last year’s labor and management cost reductions.

Early this year, the company also spun off a new unit as a joint venture with two of its shareholders to develop a snack and fruit franchise business, with a loan of 180 million yuan and 960 million yuan in cash from Pagoda co-founder and deputy chairman Tian Xiqiu and finance director Lai Hin Yeung. Citic Securities thinks the new business may have started contributing significantly to Pagoda’s growth as early as this year’s second quarter.

Meanwhile, the company has tried to boost its stock price through multiple share repurchases, most recently by Chairman Yu last December. But it has also been raising money through follow-on private placements to improve its finances.

Last September, Pagoda’s shares briefly shot up after it announced a private placement of HK$325 million ($41.4 million), nearly equal to the sum it raised from its IPO, even though it sold the shares for 19.3% less than the stock’s closing price the day before the announcement. Perhaps investors were encouraged that the funds would be used to help the company meet its debt repayment schedules and cover operating costs.

The stock ultimately gave back most of the gains, though its latest close of HK$1.44 is still well above the placement price of HK$1.17. Pagoda has had to swallow some bitter fruit over these last few years. But at least it’s still alive, and perhaps also on the cusp of a new, more fruitful chapter with the return to profitability and revenue growth.

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China’s largest maker of bird’s nest products has yet to find a winning formula beyond its traditional niche of high-spending older women

Key Takeaways:

• Yan Palace said its revenue and profit rose up to 20% and 50%, respectively, in the first half of 2026, but its shares still fell 14% in the two days after the announcement
• The company’s efforts to expand beyond its niche in traditional bird’s nest products have largely failed, leaving it dependent on cost cutting for profit growth

By Edith Terry

Xiamen Yan Palace Bird’s Nest Industry Co. Ltd. (1497.HK) has faced headwinds ever since it became China’s first “bird’s nest stock” with its Hong Kong IPO in 2023. That’s reflected in its shares, which have lost more than 40% of their value over that time.

The company’s revenue fell 2.4% last year to 2 billion yuan ($295.2 million), ending six consecutive years of growth, although its profit increased by 21% to 188.5 million yuan. Still, the uneven performance led one analyst to describe the results as “the most embarrassing report card since the listing.”

That kind of skepticism may partly explain why the company’s shares nosedived 14% in the two trading days after an upbeat profit alert last week. The company said its revenue totaled between 1.17 billion yuan and 1.22 billion yuan in the first half of this year, up 15% to 20% from the year-ago period, with its profit up 35% to 50% to 105 million yuan to 116 million yuan.

Those solid results weren’t enough to convince the market that Yan Palace is more than a faded rose in the market for traditional Chinese healthcare products. Its biggest problem may be the same laser-focused strategy behind its initial success, which catered to older, relatively affluent women who used its pricey products to improve their complexion and immunity.

Its core product is a steamed bird’s nest in a bowl. Chairman and founder Huang Jian, a former middle school teacher, developed it after working as China manager for a company based in Singapore, where he learned the importance of building scale and standardization. He seized on bird’s nests as a traditional industry with blue ocean potential for sales to China’s new and growing middle class.

By the time Huang returned to China in 1997, he was laser focused on positioning his products as a nutritional items sold from unique stores instead of the pharmacies where they traditionally sold for premium prices.

Bird’s nest empire

While building his store network, Huang looked for ways to raise standards and locked in suppliers in Indonesia, meanwhile weathering a food quality scandal in 2011. He signed up Hong Kong superstar Carina Lau, known as an “ageless goddess,” as his first brand ambassador, and the business soared as older women stocked up on the product.

China consumes 70% of edible bird’s nest products globally. The category’s signature bird’s nest soup originated in the Qing dynasty that dates from 1644. It’s even a key actor in a famous scene from the classic “Dream of the Red Chamber,” in which the frail heroine, Lin Daiyu, is fed the elixir to restore her health by her more robust friend and rival Xue Baochai.

The classic novel helped bestow bird’s nest products with a potent mix combining elite status, female beauty and wellness, despite the product’s prosaic origins. The key component to its products is hardened saliva of swiftlets, which use it as glue to hold their nests together. The saliva’s healthy properties come from its high glycoprotein content, which has made it popular not only in China, but also in Indonesia, Malaysia, Thailand and Vietnam.

After 28 years, however, Huang’s business model isn’t keeping up with the times.

The underlying problem lies in the industry’s movement toward greater volume at lower prices, according to e-commerce market research firm Jiuqian Zhongtai, which undermines its image as an elite product. While sales volume of bird’s nest products grew by 23.6% between 2023 and 2025, falling prices limited revenue growth to a slower 16.7% over that time.

Yan Palace has been trying to embrace the affordability trend by developing new product lines, pumping up its marketing, and squeezing costs through smart manufacturing using robots for logistics and AI to improve product quality.

The problem is, it isn’t working, at least not yet, although Yan Palace has succeeded in cutting other costs. The company’s efforts to attract younger women and male consumers have largely failed, and its core business has stalled. And its new product lines, which showed initial promise, have lost momentum over the past year.

Cliff hanger results

Since the IPO, Yan Palace’s bi-annual financial results have been almost as big cliff hangers as the nests where its core raw materials are typically found. In 2024, the company’s revenue rose by 4.6% to 2.05 billion yuan, but its profit dropped by 22% to 156 million yuan. It was a similar mixed bag last year, with revenue sagging by 2.4% to 2 billion yuan as its profit rose 21% to 189 million yuan.

Yan Palace has explained its wobbly performance by pointing to slack consumer demand. But the market for edible bird’s nest products should be skyrocketing. At the time of its IPO, data from the company’s prospectus said sales of such products grew at an average annual rate of 27.2% between 2017 and 2022 to 43 billion yuan by the end of that period. It further projected that market would more than double to 92.1 billion yuan by 2027.

But that bounty seems to have bypassed Yan Palace, whose efforts to develop new product lines have produced mixed results. Such new lines have expanded quickly, accounting for 231.8 million yuan in sales, or 11.7% of the total, in 2024. But the segment went into reverse last year, dropping by 7% to 215.6 million yuan, or 10.8% of total sales. New products use bird’s nests as additives or add other ingredients like coconut milk and grains.

Meanwhile, Yan Palace’s core product line of pure bird’s nest products has plateaued and even begun to decline. In 2025, revenue from those products fell 2.41% to 1.77 billion yuan, or 88.5% of total revenue, from 1.8 billion yuan in 2024.

The company’s attempt to target men by hiring celebrity businessman and adventurer Wang Shi, the founder of China Vanke now in his 70s, was largely a failure. It hasn’t given up on that market just yet, hiring the younger award-winning actor Zhu Yilong, in his 30s, to bring in male customers.

Yan Palace has scored its biggest success in reducing costs through layoffs and store consolidation as well as process improvements in its new smart factory in Xiamen, which opened in 2024. Last year it reduced its marketing and R&D costs, and also lowered its cost of sales by 10%, far more than its revenue decline that year. Those cost cuts may help to improve its profits in the short-term, but aren’t really a good longer-term strategy for maintaining its share of such a fast-growing market.

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Robotics maker Shenzhen Dobot Corp. Ltd. (2432.HK) said on Wednesday that its application for a second listing on the Shenzhen Stock Exchange's ChiNext board was approved by the exchange on Tuesday. Previous market rumors had placed Dobot's fundraising target at about 1.2 billion yuan ($177 million).

Proceeds from the offering will be used to develop embodied AI robots, with 45.8% earmarked for the development and industrialization of multi-legged models. Another 20.8% will be used to advance humanoid robotics technologies, and 8.3% will be used for marketing. The remaining 25% will go toward replenishing working capital.

Shares of Dobot opened up 5.3% at HK$26.56 on Thursday. The stock is down over 60% from its 52-week high.

By Lau Chi Hang

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"Nobody wants to miss the boat and not be able to capitalize or capture part of the growth going forward. This is emblematic of China in just about every type of business." – on why price wars are so common in China

Key Takeaways:

• China's parcel delivery sector is finally seeing prices stabilize after government intervention to curtail years of cutthroat price wars
• Hog breeders are suffering massive losses due to plunging prices, yet they continue to expand capacity to grab market share

By Doug Young & Rene Vanguestaine

Oversupply is a common theme in China these days, affecting a wide range of industries. We're currently watching this dynamic play out in two distinctly different areas: the country's express parcel delivery sector and its massive pork industry. In the delivery space, several years of intense price wars may finally be easing under government pressure, while in the hog breeding business, top producers are swinging sharply into the red due to plummeting prices — driven by massive excess capacity. Despite their differences, both sectors highlight a uniquely Chinese business approach: an aggressive, unrelenting drive to capture market share, often at the expense of rational market economics.

China's roughly half-a-dozen major delivery players have spent the last few years duking it out to see who can ship packages the cheapest. After a prolonged period of price declines, including a 6.3% drop last year, things finally appear to be stabilizing. The country's parcel volume rose 5.2% in the first five months of the year, while revenue rose by a faster 7.2%. This implies the average shipping price per parcel rose 1.9% during that time, bolstered by an even bigger 3.6% jump in May alone.

This stabilization is likely the result of government intervention. Authorities have become increasingly concerned about the profitability of these companies. If competition is pushed to the extreme and businesses start going bankrupt, it leads to mass layoffs. For Beijing, maintaining employment and social stability is always paramount. We've seen similar interventions in the instant commerce sector, where regulators routinely instruct giants like JD.com (JD.US; 9618.HK), Alibaba (BABA.US; 9988.HK), and Meituan (3690.HK) to curb their aggressive tactics.

But is this kind of intervention sustainable? History suggests it's difficult. Years ago, the government forced the steel sector to curb irrational competition and halt excess capacity building. It worked briefly, but then the cycle started all over again. The reality of China's market is that local governments, especially those far from Beijing, have their own interests at stake. They prioritize local employment, tax revenues, and civic pride. When central directives filter down, local officials often push back or ignore the instructions, eventually allowing old practices to resume.

There are also structural reasons why China's delivery companies can ship for so little and still remain profitable. During the first five months of the year, the average delivery price was about 7.67 yuan per parcel, or roughly $1. Compare that to the U.S., where a standard delivery costs $7 or $8. First, labor is obviously cheaper. Second, U.S. companies face high costs for insurance coverage, which isn't as burdensome in China. Finally, there are some cases where delivery firms likely receive substantial help from local governments in the form of lower taxes, direct subsidies, or reimbursements, making a strict comparison with the U.S. or Europe almost impossible. Furthermore, we think there's little room for true differentiation. Any new strategy would be replicated by competitors almost instantly.

A deeply cyclical appetite for expansion

We're seeing another glaring example of overcapacity in China's hog breeding business. Within the space of a single week, two leading companies, Dekon Food (2419.HK) and Muyuan Foods (2714.HK; 002714.SZ), announced they fell deeply into the red in the first half of the year, completely reversing their strong profits from last year.

The culprit is plunging prices resulting from massive oversupply. For instance, Dekon collected just 9.63 yuan per kilogram of hog sold in June, a steep 33% decline from the 14.31 yuan it commanded a year earlier. Yet, inexplicably, the company's actual hog sales rose 15% to 5.91 million heads in the first half of the year.

Why are Chinese companies such enthusiastic builders of new capacity when prices are tanking? Pork is a main staple of Chinese consumers, and the sector is historically prone to upheavals from epidemics that periodically decimate hog populations. With living standards generally rising, producers expect long-term demand to increase. The government even maintains a strategic national pork reserve, underscoring the meat's critical importance to the country.

However, the relentless expansion boils down to one primary goal: taking market share from the competition. Nobody wants to miss the boat on future growth. This mindset is emblematic of China across almost every sector — from solar manufacturing to electric vehicles. It's a way of doing business that we don't see as much in the West anymore, where economies grow slower and investors have become a lot more rational.

From an investment standpoint, the reaction to these cycles can be perplexing. After Dekon issued its profit warning detailing huge losses, its stock actually jumped 7% the next trading day, though it remains down 22% for the year. The pork industry is low-tech, mature, and highly cyclical. There are always investors willing to throw money at such sectors, much like the traditional U.S. airline industry, believing they can master the cycle better than anyone else.

But for the average investor, especially those outside the country who lack day-to-day access to local data, it's virtually impossible to fully grasp these dynamics. For those without the appetite for extreme cyclical volatility, we believe it's best to stay away and find something more predictable.

The gold producer’s profit boomed in the first half of this year on record gold prices, but it faces an uncertain future with the precious metal’s recent pullback

Key Takeaways:

• Lingbao Gold said it expects to report its profit jumped about 50% in the first half of 2026
• The company’s outlook is cloudy as gold prices move sharply lower from record highs reached early this year

By Lau Chi Hang

Gold was on a tear for most of the past two years, more than doubling from about $2,000 an ounce at the end of 2023 to nearly $4,600 by the end of last year. The rally continued into 2026, as the price climbed higher still, like a runaway horse, skyrocketing to $5,600 within a single month at the start of the year.

Lingbao Gold Group Co. Ltd. (3330.HK) was one of many gold companies to benefit from that boom, pumping up its profits over the period. Last week, Lingbao said it expects to report revenue of 7.9 billion yuan ($1.17 billion) to 8.1 billion yuan for the first half of this year, up by a modest 1% to 4% year-on-year. But its profit fared much better, jumping by 42% to 57% over the period to between 950 million yuan and 1.05 billion yuan.

Climbing profits

The company attributed the strong profit gains to its “steady advancement of production and operation” in the first half of the year, along with ongoing cost-cutting and efficiency-enhancing measures. And then, of course, there was the significant jump in gold prices during the period. Secondarily, the company also cited the April consolidation of its Simberi gold mine in Papua New Guinea into its financial statements, which helped its earnings.

Lingbao also pointed out its first-quarter profit was partly undermined by a 260 million yuan loss from fair-value changes in its convertible bonds, coupled with 22.11 million yuan in related financial expenses.

Even so, Lingbao's financial report card for the six-month period was quite strong overall. The company's stock breached the HK$16 mark the day after the alert, closing 6% higher on the day.

Lingbao produces gold, silver, copper and sulfuric acid and engages in a range of activities, including mining, exploration, and smelting. The company held 34 mining and exploration rights covering an area of 187.47 square kilometers at the end of last year, with a total of about 148.48 metric tons in estimated gold reserves, equivalent to 4.77 million ounces.

The company has enjoyed four consecutive years of rising profits, climbing from 230 million yuan in 2022 to 1.56 billion yuan last year. While it may like to attribute that growth to its own operational performance, the primary driver was the explosive rally in gold prices. Accordingly, understanding Lingbao's fate requires understanding the pulse of the bullion market.

Gold selloff

Gold got off to a strong start this year, surging in January to as high as $5,600 an ounce at one point. The rally was supported partly by investor expectation for a rate cut by the U.S. Federal Reserve, which tends to make gold more attractive as an investment option. Gold's upward momentum was expected to continue as the dollar weakened, making $6,000 an ounce seem attainable.

Even the World Gold Council, in its “2026 Gold Outlook” report, noted that geopolitical uncertainty was likely to continue this year, another factor that tends to support gold investment. The report said slowing economic growth, compounded by falling interest rates, could produce modest gains for gold prices. And a worsening economic landscape and intensifying geopolitical uncertainties could drive prices even higher.

When the U.S.-Iran broke out in February, many assumed the gold rally would just intensify. But the momentum unexpectedly disappeared after a late January peak, and prices have been tumbling ever since. They recently dropped to about $4,000, down nearly 30% from their highs.

Some suggest that while investors initially looked to gold as a safe-haven investment, things changed with the threat of returning inflation after the U.S.-Iran conflict caused a sharp spike in oil prices. That meant the U.S. might be forced to raise interest rates in response, rather than earlier expectation for a rate cut, undermining gold prices.

At the same time, some investors also began to take profits after the prolonged rally. That selling only accelerated as hopes dwindled for rate cuts this year, triggering a flood of sell orders that dragged down prices even further.

With the U.S.-Iran conflict unlikely to end anytime soon, hopes for a U.S. rate cut have pretty much disappeared, with the dollar beginning to strengthen. The U.S. Dollar Index has climbed from its February low of about 96 to its recent level of 101, and the upward trend looks likely to continue. In such an environment, gold prices will likely struggle for the rest of this year, and don’t look set to touch their previous highs anytime soon.

Cyclical movement

In response to the changing environment, the World Gold Council now expects gold prices to hover around the $4,100-an-ounce mark, noting that a return to $4,500 is only possible if interest rates begin to fall.

Several investment banks have also become more conservative on gold. JPMorgan expects the price to range between $4,300 and $4,500 an ounce in the third and fourth quarters, while Bank of America has adjusted its full-year average target to $4,360. HSBC anticipates an even broader trading range of $3,800 to $4,700.

A trading band around the $4,000 level will likely undermine Lingbao Gold and its peers in the second half of the year, at least in terms of sustaining their recent profit gains. Should the precious metal weaken further, dipping below the $4,000 mark, the company’s profits could even start to contract.

After all, everything moves in cycles. Historians will remember that gold staged an epic rally in the 1970s, skyrocketing 20-fold from $35 per ounce. The glory days then faded in the 1980s, followed by steady declines that drove prices as low as $250 an ounce by 2000. Back then, no one believed the metal would ever reclaim its former glory, captured by the market adage, “Yesterday’s gold is today’s scrap copper.”

But just when gold looked utterly abandoned, it began to stabilize and started to rise again before the explosive growth of the last few years. Now, the big question becomes where the metal is headed next, which will dictate the fate of Lingbao Gold and others whose business centers on the precious metal.

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The major hog producer said it expects to report a net loss of up to 1.4 billion yuan in the first half of 2026, reversing a 1.23 billion yuan profit a year earlier

Key Takeaways:

• Dekon swung sharply into the red in the first half of 2026, as prices for its core hog-raising business plunged 32.7% in June compared with a year earlier
• The company’s hog output rose 25.6% in June year-on-year despite the plunging prices, showing the industry remains heavily oversupplied

By Doug Young

Some serious crowding is happening in the Chinese pig pen.

That’s the central message coming in a new profit warning from Dekon Food and Agriculture Group (2419.HK), which said it fell sharply into the red in the first half of this year due to a nationwide glut of China’s favorite meat. Dekon’s warning comes just days after larger peer Muyuan Foods (2714.HK; 002714.SZ) issued a nearly identical message.

Industries like pork are famously cyclical, as producers rush to build up new capacity when prices are high and supplies are tight, resulting in oversupply. In this case, China encountered a major pork squeeze in late 2019, just before the pandemic, when prices nearly tripled to as much as 38 yuan per kilogram during an outbreak of African swine fever.

By comparison, Dekon was able to collect just 9.63 yuan per kilogram of each hog that it sold in June, according to a monthly business update issued by the company on Thursday. That figure was down 24.4% from what it charged in January, and 32.7% lower than the 14.31 yuan per kilogram it got in June 2025.

The plunging prices plunged Dekon into the red, as the company said it expects to report a loss of between 1.2 billion yuan ($177 million) and 1.4 billion yuan for the first half of this year, a 180-degree turn from 1.23 billion yuan profit it reported in the first half of 2025. The company said that tanking hog prices dropped the gross margin for its hog-breeding business, which accounts for about 85% of its revenue, into negative territory, meaning each hog cost more to raise than Dekon could recoup from selling the animals.

“Whilst the group has strived to improve production efficiency and lower breeding costs through technological research and development and innovation, lean production management and business model upgrades, as well as hedging operational risks by adopting financial derivative instruments such as hog futures, the adverse impact of persistently low hog prices on profitability has substantially outweighed the benefits brought by such initiatives,” the company said.

Muyuan’s profit warning, issued on July 10, was nearly identical. It said it expects to report a loss of between 5.7 billion yuan and 6.7 billion yuan for the first half of this year, reversing a 10.5 billion yuan profit in the year-ago period. It also cited plunging prices, though its year-on-year decline of 28% for that metric looks slightly milder than what Dekon reported, probably reflecting Muyuan’s larger size that results in better gross margins.

Dekon’s gross margin stood at 13.7% last year, more than four percentage points below Muyuan’s 17.8%. We should also note that Dekon’s 2025 gross margin was down sharply from the 23.0% it reported in 2024, as the company blamed falling prices for both hogs and also its smaller chicken-raising business.

Surprisingly, investors didn’t seem too concerned about the latest gloomy outlook. Dekon’s stock actually rose 6.8% on Thursday, the day after the announcement. But even after that rally, the stock is still down 22.3% this year. The shares trade at a trailing price-to-earnings (P/E) ratio of 13, based on last year’s profit, which looks relatively strong for such a mature industry. But we should also note that’s below Muyuan’s ratio of 16.

Churning out hogs

Next we’ll take a look at some of the numbers that show why China’s hog industry is in such a state of oversupply. We previously pointed out that many industries are similarly cyclical, as producers rush to build up new capacity during times of tight supply and high prices. But China seems especially prone to such cycles, which plague everything from steel to new energy vehicles and solar panels, perhaps reflecting the relative youth of its market-based economy.

Dekon’s numbers nicely illustrate the trend, which shows how companies continue to add new capacity even when it’s clear that prices are falling. In the first six months of this year the company sold 5.91 million hogs, up 15.4% from the 5.12 million it sold in the year-ago period. That metric rose by an even larger 25.6% year-on-year in June to 1.03 million hogs from 820,000, showing Dekon continued to keep boosting its output even as it lost money on every hog it sold.

But falling prices more than offset the big increase in hog output, causing the company’s revenue from hog sales to tumble 18.4% to 8.18 billion yuan in the first half of the year from 10.02 billion yuan a year earlier.

While Chinese consumers are undoubtedly quite happy about the low prices, another beneficiary is pork products makers like WH Group (0288.HK), owner of the U.S. Smithfield (SMD.US) brand, but also a major seller of finished pork products in China. WH Group hasn’t given any first-half profit or revenue guidance, but it reported that its profit rose about 25% in the first quarter of this year to 476 million yuan.

In one slightly positive sign for the industry, Dekon reported its average selling price of 9.63 yuan per kilogram of hog in June was actually up slightly from 9.42 yuan in May, potentially showing prices have bottomed out. But given the fact that the company and its peers continue to flood the market with hogs, it’s also quite possible the slight uptick is just a statistical anomaly, and the downward pressure will continue in July.

Dekon’s big first-half loss means the company is almost certain to lose money for all of 2026, though it was also in the red as recently as 2023, when it reported an annual loss of 1.78 billion yuan. It’s also worth noting the analyst community is relatively positive on the company, with four of the five polled by Yahoo Finance rating Dekon a “buy” and the fifth a “hold.” The biggest message from all this is that investors are already quite aware that the pork industry is highly cyclical, and are relatively positive on Dekon and peers like Muyuan as they gradually consolidate their positions as leaders in the world’s largest pork market.

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Weak investor sentiment has dogged Eastroc since its Hong Kong IPO in February, even as the energy drink maker reports strong growth

Key Takeaways:

• Eastroc lost over $1 billion in market cap over five days as its Shanghai- and Hong Kong-listed stocks tanked after the release of an AI-generated video involving its chairman
• Sentiment towards the stock was already weak even before the selloff, possibly reflecting the company’s struggles to shed the working-class image of its signature energy drink

By Edith Terry

It was one of those incidents that should have been easy for a good legal or public relations team to quickly shake off. On June 22, a video went viral showing Lin Muqin, founder and chairman of Eastroc Beverage (Group) Co. Ltd. (9980.HK; 605499.SH), trading toasts with motorcycle entrepreneur Zhang Xue. The kicker was Lin’s deferral when offered his own product, an energy drink often likened to the Red Bull of China.

“I don’t normally drink this,” Lin says in the video.

Although it quickly became evident that the video was manipulated using AI, Eastroc’s Shanghai- and Hong Kong-listed shares took a bath over the next four trading days, wiping out a combined 7 billion yuan ($1 billion) in market value. The selling frenzy only calmed after Zhang Xue released the original video and police identified the culprit behind the AI version, stabilizing the stock.

Fraud and scams are a dime a dozen for consumer brands in China, often perpetrated by rivals and others out to undermine a popular product. But the fact that so many people believed the video spotlights a bigger problem for Eastroc, namely its working-class image. That issue is making it hard for the company’s products to gain traction among more affluent and bigger spending Gen Z consumers.

The Shanghai Consumer Council and other industry bodies show that people from Gen Z, typically born between 1995 and 2012, often check product labels for sugar content and verifiable claims. That’s not great for Eastroc, whose core energy drink contains an eye-popping 66.5% sugar per 500 milliliter can – 2.1 times what Red Bull contains.

The same can of Eastroc sells for 4 yuan to 5 yuan, versus 6 yuan for a 250 milliliter can of Red Bull. That difference may be enough to sway lower-paid blue collar workers, but might not be enough to convince more nutrition-conscious Gen Z white collars.

Homegrown beverage giant

Eastroc is China’s first dual-listed beverage company, after making a HK$10 billion ($1.28 billion) Hong Kong IPO in February to complement its existing Shanghai listing dating back to 2021. The Hong Kong stock has moved steadily downward since the listing and, at Wednesday’s close of HK$112.40, is down about 40% from its IPO price.

Eastroc isn’t exactly alone, as the Shenwan Hongyuan Securities’ Food and Beverage Industry Index is also down 20.42% in the first six months of 2026, reflecting weak investor sentiment towards the sector. But Eastroc should be able to defy that trend, at least based on its strong financial performance.

The company’s revenue rose 31.8% last year to 20.9 billion yuan, while its net profit rose by a similar 32.7% to 4.42 billion yuan. It sold more than 10 billion bottles of its various beverages and announced a slower but still healthy 20% growth target for 2026 revenues. Its first quarter revenue rose 21.46% to 5.8 billion yuan, putting it on target to meet that goal. The company is also quite popular among analysts, with active coverage by more than 30 institutions.

Eastroc fought an earlier battle in China with the original Red Bull, and emerged as the clear winner. It controlled 51.6% of China’s energy drink market by volume and 38.3% by sales last year, according to Nielsen IQ data. By comparison, Red Bull entities controlled 35% of the market by volume.

Modest roots

Like many of China’s most famous entrepreneurs, founder Lin Muqin certainly has the working class roots he seemed eager to shed in the fake AI video. Born in the city of Shanwei in Guangdong, into a family that made its living from fishing, he moved to Shenzhen in 1984 when the city was still relatively small. He worked there at a company that began making the Red Bull energy drink in a joint venture in 1995.

Lin moved from there to a state-owned soymilk producer in 1997, and bought the company in 2003 when it was on the verge of bankruptcy. He turned to energy drinks by 2009, using his experience to create a product tailor made for Chinese workers, including a lid that shielded the drink from the dust at construction sites, and a price about half that of Red Bull.

Lin has been working to pump up his company’s share prices, approving a plan in April to repurchase up to 2 billion yuan worth of the Shanghai-listed stock. He also increased his holdings of the Hong Kong-listed stock by 49,800 shares worth HK$6.5 million in late May, and said he would consider spending up to HK$200 million of his own funds on more shares.

Eastroc’s core product is its original energy drink, but it has been working hard to build a broader line of sports drinks. Energy drinks accounted for 74.8% of the company’s revenue last year, while sports drinks made up 15.7%.

Both drink types are part of a Chinese functional drinks market worth 166.5 million yuan in 2024 and growing 8.3% annually, according to third-party research in Eastroc’s Hong Kong IPO prospectus. Energy drinks are the largest segment of the market, with retail sales of 111.4 billion yuan in 2024, while sports drinks had sales of 54.7 billion yuan

But that space is increasingly crowded. Monster Beverage (MNST.US), 19% owned by global giant Coca-Cola (KO.US) saw its net sales in China rise 95% year-over-year in the first quarter, after launching its Predator brand aimed at blue-collar workers in 2024. TCP Group, one of the names behind the Red Bull brand in China, also announced plans for a third Chinese manufacturing facility in the Guangxi region in 2024.

As those and other rivals piled into the market, growth rates for Eastroc’s flagship products have been slowing. Revenue for its core energy drink rose just 17.25% in 2025, and the rate fell further to 13.11% in the first quarter of 2026, compared to 41.6% in 2021. Its key sports drink also dropped to 13% growth in the first quarter, compared to 119% in 2025.

As growth for those key products slows, Citigroup recently lowered its 2026 and 2027 earnings forecasts for Eastroc by 10% and 15%, respectively, and cut its sales forecasts for those years by 7% and 12%, citing unfavorable weather conditions and intensifying competition. It also slashed its price target for Eastroc’s Hong Kong shares from HK$310.80 to HK$161.70.

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Same-store sales for the ‘sauerkraut fish’ chain rose 6.1% in the second quarter, marking a second quarter of growth after a double-digit decline in 2025

Key Takeaways:

• Jiumaojiu’s Tai Er restaurant chain posted a second consecutive quarter of same-store sales growth in the second quarter, as its other metrics were also generally positive
• The chain launched a major brand refresh last year, and has closed about a quarter of its outlets since the end of 2024

By Doug Young

After two difficult years of soul searching, restaurant operator Jiumaojiu International Holdings Ltd. (9922.HK) is finally showing some positive results with its new recipe for success. And after reaching a milestone with a return to same-store sales growth for its signature Tai Er chain this year, the company is now trying to replicate the model with some of its smaller chains, according to a second-quarter business update released on Friday.

The Tai Er chain maintained its recent momentum in the latest quarter, including 6.1% same-store sales growth – a metric that only turned positive this year after a double-digit decline in 2025. Trends for the chain’s other major metrics were also generally positive, including spending per customer and table turnover. The same wasn’t true for its other brands, which continued to sag and could be next in line for much-needed overhauls.

Jiumaojiu’s earlier rapid rise and even faster fall shouldn’t surprise too many restaurant stalwarts, who know you can never sit on your laurels in this fast-moving industry. But most of China’s newest national chains are quite young, with often a decade or less of history as major operators. As a result, most have learned the hard way that restaurant brands can fall out of fashion as quickly as they gained their trendy cache.

Jiumaojiu started out with its namesake Jiu Mao Jiu brand, which offered low-cost meals in Northwestern Chinese-style cuisine. But it found its biggest success with its newer Tai Er chain, launched in 2015, serving up trendy “sauerkraut fish” that mimicked the hotpot style favored by many young Chinese.

The chain briefly boomed through the early 2020s, with lines often forming outside its stores, many of those located in shopping malls. But then diners quickly tired of the format, and some began to criticize it for using fish prepared off-site in central kitchens, contrasting with the older tradition of keeping large tanks full of live fish at many restaurants and killing, cleaning and cooking each fish to order.

Jiumaojiu’s stock rose and fell with its fortunes, climbing as high as HK$32 at its peak, valuing the company at a healthy HK$55 billion ($7 billion). But nearly all that value has vanished in the last few years, with its current market value at just HK$1.6 billion. As its stock sank to new lows, including its latest close last Friday of just HK$1.23, many joked the company’s name, which means 99 cents in Chinese, was the same as the value of its stock.

The company has experimented with quite a few other brands since the Tai Er success, including names like Song Hot Pot, Lai Mei Li, Fresh Wood and Shanwaimian. But none of those have gained any traction, leaving it mostly reliant on the Tai Er and Jiu Mao Jiu brands. But even those two brands were overbuilt, following a pattern for many successful Chinese chains that often expand into marginal locations as they seek growth at any cost.

Footprint slimdown

Jiumaojiu has spent the last two years trying to “right-size” Tai Er and its other chains, and that trend continued in the second quarter. The Tai Er chain had 477 restaurants at the end of June, down from 499 at the end of last year and a quarter below its 634 outlets at the end of 2024. Jiu Mao Jiu has undergone a similar slimming, though its network has dropped by a milder 14% to 61 stores at the end of June from 71 at the end of 2024.

The big story for the Tai Er chain was a complete brand refresh that was sorely needed, led by a return to the practice of killing and preparing live fish on the premises. In addition, the company also focused on use of other fresh meats like chicken and beef, and adopted an open-kitchen format allowing customers to see the entire process of their food being prepared.

The overhaul began bearing results this year, as the Tai Er chain returned to same-store sales growth of 6.9% in the first quarter. The growth rate fell slightly in the second quarter to 6.1%, though that was still a huge improvement from an 11.5% decline for that metric in 2025. The Jiu Mao Jiu chain did far worse with a 13.5% same-store sales decline in the second quarter, easing just slightly from a 15.8% decline for 2025.

The Tai Er chain’s spending per customer and table turnover rates also held relatively stable in the second quarter compared with the first, suggesting its rebound could be starting to plateau. But all the figures from this year represent notable improvements from 2025.

As the company rolls out its “fresh and live” campaign, the number of stores with the new format reached 340 by the end of June, or about 70% of all Tai Er outlets. It also pointed out that the new format is very much a work in progress, and is now up to its sixth iteration with the launch of its 6.0 Fresh Model in its hometown of Guangzhou last month.

“The group believes that, with the continued iteration and upgrade of the ‘Fresh’ model and the gradual completion of the remaining store conversions, Tai Er’s operating resilience in the Chinese Mainland will continue to manifest in the second half of the year,” it said.

The campaign’s promising signs have yet to be reflected in its stock, which has lost another 31% of its value this year. But the analyst community seems more positive, with 10 of the 15 who follow the stock rating it a “buy” or “strong buy,” according to Yahoo Finance. Then again, at least some of those probably believe the stock may be significantly undervalued after all the declines, leaving it trading a price-to-sales (P/S) ratio of just 0.28 and a forward price-to-earnings (P/E) ratio of 7.6.

Jiumaojiu also indicated that a similar overhaul is on the way for its namesake Jiu Mao Jiu chain, which is far smaller than Tai Er but is still its second-largest brand. It said the company has opened six new stores for the chain under the new format, called “Jiu Mao Jiu Shanxi Cuisine Restaurant,” with locations in Guangzhou, Shenzhen and Foshan, all in South China’s Guangdong province.

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"As Africa develops, the way consumers look at life is very likely aligning more with the way consumers in more developed parts of the world look at life" – on the challenges confronting leading African smartphone maker Transsion

Key Takeaways:

• Transsion's dominance in Africa is facing severe pressure as bigger Chinese smartphone makers target the market
• Cafe de Coral is fighting back against changing consumer dining habits and an influx of Mainland chains in its home Hong Kong market

By Doug Young and Rene Vanguestaine

We're currently witnessing a fascinating intersection of shifting consumer behavior and the expanding reach of Chinese businesses. While they are quite different in terms of product, both the global smartphone market and the local Hong Kong fast-food dining scene are being rapidly reshaped by fierce competition, changing demographics, and evolving consumer tastes. Whether it's tech giants vying for emerging markets or local food stalwarts defending their home turf, established players are finding that past success doesn't guarantee future dominance.

Let's start with Transsion (688036.SH), one of China's biggest smartphone makers that probably isn't known to many outside of Africa. The company, behind brands like Itel and Tecno, has been listed in Shanghai since 2019. It recently renewed its application for a Hong Kong listing after an earlier bid expired, putting the company’s global expansion story back into focus.

Transsion rose to prominence by targeting Africa back in 2008 — an era that almost sounds like a lifetime ago in the fast-moving cellphone world. They became incredibly successful because they targeted the African market with laser focus. Their phones featured long battery life to cope with unreliable electricity, and they provided support in local languages. At the time, larger rivals like Xiaomi (1810.HK), Oppo, and Vivo skipped the continent. It made perfect sense for those brands to focus on the enormous Chinese market, where they could produce at scale for hundreds of millions of consumers with similar tastes and a single shared language, rather than navigating the vast diversity of African nations.

But the landscape is shifting, and Transsion's latest prospectus presents a mixed picture. While it's still growing in Africa, the pace has slowed, and its footprint is shrinking in other emerging markets like Southeast Asia and Eastern Europe. Notably, Transsion hasn't even made any serious attempts in its home market. Meanwhile, the Chinese government is putting more emphasis on commercial cooperation and trade with Africa. With the domestic Chinese market largely saturated, brands like Xiaomi and Vivo are realizing that standards of living in many African nations are rising. As Africa develops, local consumers are adopting lifestyles more aligned with developed regions. It's the perfect time for massive Chinese competitors, armed with huge scale and deep R&D resources, to move in, inevitably growing to the detriment of the established player.

It's an industry that's become quite mature and highly commoditized. While Apple (AAPL.US) and Samsung (005930.KS) remain kings of the premium tier globally, Chinese names dominate everything else. Even in massive emerging markets like India, which some say is 10 or 20 years behind China, local manufacturing champions haven't emerged. Vivo, Oppo, and Xiaomi are doing remarkably well there, proving companies with established scale can prosper in the market. We don't see this hierarchy changing dramatically; the real drama will be watching how these Chinese brands compete against each other.

Changing tastes and new rivals challenge Hong Kong dining

From smartphones, we’ll pivot to the Hong Kong dining scene with Cafe de Coral (0341.HK), a household name that has dominated the city’s fast-food landscape for decades. The company suffered a steep decline in profits for a year and a half before things started to rebound a little in its latest six-month period through March. The early turnaround of Cafe de Coral reflects broader, systemic shifts in the city's dining habits.

Chief among its hurdles are evolving dining trends. Food delivery is becoming more prominent, and people are simply dining out less. In response, Cafe de Coral is downsizing its average restaurant footprint to align with the growing preference for takeout. We think this is a smart strategy to manage costs in a weaker demand environment, and it may have helped restore short-term profits. However, it doesn't solve the core issue of a shrinking dine-in customer base.

Furthermore, the company is battling a new generation of cheaper cafeteria-style rivals and a wave of Mainland Chinese chains setting up shop in Hong Kong. It's a theme we've seen playing out over the last decade: China is churning out its own slick, price-competitive fast-food chains.

There's also a significant geographical shift at play. Hong Kongers are increasingly crossing the border to Shenzhen over weekends and holidays. There are cases of locals taking day trips specifically to get a massage and eat at local restaurants that offer quality food at significantly lower prices. As long as the exchange rate remains relatively stable, this habit is likely here to stay. Finally, we're looking at a structural demographic shift. With a very low birth rate, Hong Kong's population growth relies primarily on immigration from the Mainland, supported by business talent schemes. As the Pearl Delta Greater Bay Area integrates Shenzhen, Zhuhai, Hong Kong and other parts of Guangdong province, these newer residents — and even longtime Mainland expats — naturally favor familiar Mainland brands over local Hong Kong ones. It's a formidable headwind, and traditional stalwarts will need more than just a smaller footprint to maintain their dominance.

The veteran food giant’s revenue began expanding again in its latest fiscal year, but channel reconstruction, new product promotions and rising costs depressed its profit

Key Takeaways:

• Want Want's revenue for its fiscal year through March rose 3.8% to 24.4 billion yuan, but its profit fell by 11.5% to 3.84 billion yuan
• The food veteran’s distribution costs rose 16.9% as it restructured its sales channels, dragging down its profitability

By Lee Shih Ta

Food giants in the past could coast along for years simply by banking on established distributor networks and a few blockbuster products. But the collective rise of specialty snack makers, content-based e-commerce, on-demand retail and discount business models have thrown a major spanner into that time-tested model. Today’s brand owners can no longer merely push products into tried-and-true channels like they once did, and must instead constantly redesign their products, pricing, and consumption scenarios for changing tastes.

For stalwarts like Want Want China Holdings Ltd. (0151.HK) that rely heavily on classic products and extensive distribution, channel overhauls have become a new operational flavor of the day as they race to keep up with the changing times. The company’s latest annual financial results show Want Want’s transformation has already put the company back on a growth track, at least on its top line. Yet it still remains in a painful transition characterized by pressure on its bottom line.

Want Want's revenue reached 24.4 billion yuan ($3.59 billion) in its latest fiscal year through March, up 3.8% year-on-year, while its sales volume also recorded high single-digit growth. But its gross margin dipped from 47.6% to 46.3%. Reflecting the financial pressures it’s feeling, the company’s operating profit fell 14% year-over-year to 5.02 billion yuan, and its net profit slipped 11.5% to 3.84 billion yuan.

Such laborious top-line growth is the result of Want Want's ongoing channel overhaul over the past two years. The company launched its “conquering cities and winning the world” strategy at the end of its 2024 fiscal year, reorganizing its product categories and establishing a new product business division. The steps were aimed at changing a past model that relied heavily on wholesalers, supermarkets, and the widespread distribution of blockbuster products, into a new approach more closely tailored to a wider range of channels and consumption scenarios.

Under the overhaul, Want Want subdivided its traditional wholesale business into finer segments, seeking new customers based on smaller regions and product combinations. At the same time, it also pushed its products into more youth-oriented scenarios such as areas around schools, e-sports arenas, and billiard halls. At the convenience store level, its primary focus has become ready-to-drink and single-serving products. In supermarkets, it strengthened its family-sized packaging and gift boxes. And for specialty snack retail, it increased the number of items suitable for high-volume sales.

In its latest fiscal year, traditional and modern channels still accounted for nearly 70% of total revenue, though both segments declined by high single-digits. By comparison, specialty snack retail channels grew rapidly to account for about 15% of revenue, while emerging channels also grew by low double-digits. Traditional channels remain the company’s base, but growth is clearly shifting toward specialty snack retail, e-commerce, on-demand retail, vending machines and social media platforms.

Blockbuster product slowdown

The company’s product mix has also changed in tandem with the channels. Dairy and beverages remain the company’s largest segment with 12.34 billion yuan, up 1.9% year-over-year, accounting for about half of total revenue. But the dairy segment fell by a slight 0.3%. The company’s real growth drivers were beverages and other minor categories, which rose nearly 40% and made up over 80% of sales volume growth. The rice cracker segment recorded 5.94 billion yuan, up just 0.5%, acting as a stabilizer for the overall revenue base.

Want Want has always possessed the organizational DNA to open up markets by relying on blockbuster products. In its early years, the company manufactured canned foods in Taiwan. It later went to Japan, where it learned about rice crackers, building its Want Want brand on the success of products like its Shelly Senbei Rice Crackers. After entering Mainland China, its Want Want Hot-Kid Milk Drink established it as a national brand.

But while such blockbuster products can establish a foundation, they eventually plateau. Conversely, the company’s new beverage products and niche categories such as candies and ice products under the snack foods segment recorded faster growth.

Among those, the most outstanding performer was the snack foods segment, whose revenue climbed 10.4% to 5.92 billion yuan, as sales volume also achieved double-digit growth. Benefiting from increased volume for new products such as gummies, squeeze candy and compressed milk candy tablets, revenue from the company’s candies category reached an all-time high. That shows Want Want's growth narrative has shifted toward more niche categories and diverse consumption scenarios.

As for last year’s profit decline, the drop owed to a confluence of factors, including rising costs and transitional expenses. Among these, the cost of goods sold rose by 6.3% to 13.1 billion yuan, which was primarily the result of rising costs for imported whole milk powder and palm oil. At the same time, distribution costs increased by 16.9% to 3.54 billion yuan, as the company developed new channels and promoted new products, while administrative expenses also grew by 11.4% to 3.35 billion yuan.

When compared to its peers, Want Want’s split situation of rising revenue but falling profits looks awkward. Tingyi (0322.HK) saw its revenue drop by 2% to 79.07 billion yuan in 2025, but its net profit rose by 20.5%. Similarly, Uni-President China’s (0220.HK) profit also rose by 10.9%. By comparison, Want Want's failure to convert revenue growth into profit growth shows its channel overhaul and marketing investments are still weighing on its margins.

Fortunately, Want Want remains a cash-rich company. The company’s cash and long-term bank deposits totaled 15.86 billion yuan at the end of March. Its total borrowings fell to 2.66 billion yuan, giving it net cash of 13.2 billion yuan. The company recorded net cash inflow from operating activities of 4.5 billion yuan for the year, which is enough to support its continued investments in new channels, new products and overseas expansion.

Still, investors appear impatient to see better post-overhaul results. Want Want's stock plunged by 18.7% over the two trading days after it published its latest results, bringing its losses to 32.5% over the past six months. The shares currently trade at a trailing price-to-earnings (P/E) ratio of about 8.5 times, lower than Tingyi's 11 times and Uni-President's 12.7 times.

Investors may be worried over the high price Want Want is paying for its revenue growth. To change that, the company needs to show that specialty snack retail, emerging channels and new products are not solely generating sales volume, but are also capable of recapturing the same kind of lucrative profits that Want Want’s blockbuster products commanded in an earlier era.

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The city’s leading pharmacy chain reported record revenue and profits in its latest fiscal year, lifting its shares

Key Takeaways:

• Lung Fung reported its profit reached HK$269 million in its latest fiscal year through March, up nearly 60% from the previous year
• The Hong Kong pharmacy operator’s stock has lost more than 50% of its value just a month after its IPO

By Lau Chi Hang

Hong Kong’s IPO market continues to shine this year, with many newly listed stocks delighting investors with healthy gains on their first trading days. But that wealth-creating elixir has evaded Lung Fung Group Holdings Ltd. (2290.HK), one of Hong Kong's top three pharmacy chains, which stumbled out of the gate a month ago by giving investors a haircut when its stock lost nearly half its value in its trading debut.

Despite that dismal performance, the company’s maiden post-IPO financial report, released last week, looked quite strong. Its revenue jumped 33.2% year-over-year to HK$3.28 billion ($420 million) in its fiscal year through March, while its annual profit soared by 57.9% to HK$269 million, as both figures set new records.

The company's financial health also remained strong during the year. Its cash reserves reached HK$73.64 million, up 20% year-over-year, while its short-term bank borrowings fell by 17% to HK$543 million, with no long-term bank debt on its books. And while the company generated nearly HK$3.3 billion in revenue for the year, its receivables stood at just HK$31.6 million. Conversely, its payables rose by 19% year-over-year to HK$184 million. Those figures show Lung Fung is benefitting by quickly settling its sales, while obtaining longer payment terms from its suppliers.

From small pharmacy to listed company

Lung Fung started as a small neighborhood pharmacy when founder Tse Siu Hoi opened his first shop in 1992 in Sheung Shui, a remote area far from Hong Kong’s urban center. Tse never could have imagined back then that 34 years later, his company would emerge as the lone independent pharmacy operator to compete with Hong Kong's two giants, Watsons and Mannings, which are both connected to big local corporations.

Much of the company’s success owes to a policy shift rolled out by China in 2003, making it much easier for Mainlanders to travel to Hong Kong individually, ending years of travel mostly confined to tour groups. That led to a flood of Mainland tourists visiting Hong Kong. Lung Fung was able to capitalize on that move since its location in Sheung Shui — once considered remote – suddenly became a hotbed of activity due to its proximity to the Mainland border.

Lung Fung's business skyrocketed as Sheung Shui quickly became a prime destination for Mainlanders crossing the border to purchase daily necessities and medicines. The company expanded by opening new branches, boasting eight stores in the Sheung Shui area alone at its peak.

Basking in the new prosperity for his pharmacy business, Tse expanded by making moves into the real estate brokerage and restaurant businesses, leveraging his Lung Fung name with each. He also invested in residential properties, retail shops and industrial buildings, and even purchased an industrial building in 2011 with plans to convert it into a columbarium to house funerary urns.

Lung Fung also expanded beyond its Sheung Shui roots. As of June this year, its operated 31 stores throughout the city, with product categories including beauty, healthcare, and pharmaceuticals. Measured purely in terms of pharmaceutical retail, the company ranks first in Hong Kong with 5.2% of the market. Tse set his sights on the capital market as his business grew, ultimately landing on the Hong Kong Stock Exchange a month ago.

Even after a 30% rally for the stock after its stellar earnings report last week, the company still trades at an anemic trailing price-to-earnings (P/E) ratio of just 6 – quite low compared with the 14 for local health and beauty chain operator Sa Sa International (0178.HK).

Limited to Hong Kong

Given its strong financials and status as Hong Kong’s leading pharmacy chain, why has the company failed to win market favor? The key may lie in the limited size of its home market. According to Lung Fung's prospectus, the total market for beauty, pharmaceutical, and healthcare products across all of Hong Kong in 2025 was HK$29.5 billion, highlighting limited prospects for growth.

Lung Fung’s 31 stores are already located throughout Hong Kong’s three major districts. And while there’s still room to open more, most areas are already heavily covered in the city’s relatively small geographical area. The company’s ability to grow its profits in its latest fiscal year owes largely to China’s further relaxation of travel restrictions to Hong Kong, which have continued to benefit Lung Fung. But with no new consumer stimulus policies in sight for now, additional catalysts to drive consumer foot traffic seem unlikely.

And even if the company keeps expanding, it still faces formidable competition from well-capitalized local rivals like Watsons and Mannings. While those two chains have lost some of their luster in recent years, both are backed by super-conglomerates CK Hutchison Holdings and Jardine Matheson Group, respectively. That strong support means Lung Fung can’t easily take market share from either of that pair.

No Mainland story

The reality is that solely relying on organic growth within Hong Kong makes achieving major breakthroughs difficult for companies like Lung Fung. Only by opening stores in the far larger Mainland market can such companies offer a growth narrative to get investors excited enough to award higher valuations. After all, investors are far more focused on the future, carefully scrutinizing a company’s growth prospects when picking stocks.

But telling a beautiful China growth story is easier said than done, and very few Hong Kong companies have been able to achieve such feats despite frequent efforts over the years. Even the locally dominant Watsons hit a wall in China, and was forced to close 279 Mainland stores last year in the face of declining revenue and profits. Sa Sa, a brand once familiar to Mainland consumers after its own expansion across the border, also suffered a crushing defeat that led it to completely withdraw from the market last year.

As a local pharmacy, Lung Fung has succeeded with its strategy centered on low prices and a wide variety of products. One way it maintains its low prices is by relying on “parallel imports” that carry lower prices than big brand products. But such a strategy might be difficult to replicate in Mainland China, which would take away that competitive advantage. But without a China growth story, no matter how difficult it might be to execute, Lung Fung simply lacks much attraction for Hong Kong investors.

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The provider of commercial vehicle parts and services has filed to list in Hong Kong, boasting average annual profit growth approaching 800% over the past three years

Key Takeaways:

• New SORL Auto Parts has filed for a Hong Kong IPO, reporting rapid profit growth that is largely the result of reduced sales expenses
• The commercial vehicle parts and services provider faces fierce competition in a highly fragmented market where leading companies command less than 1% share

By Cheng Shui Tong

Hong Kong’s benchmark Hang Seng Index has been on a losing streak lately, even as IPOs continue to boom. Commercial vehicle parts and services provider Zhejiang New SORL Auto Parts Co. Ltd. is driving head-on into that bifurcated mix, submitting its IPO application late last month. As the leader of its industry, the company looks quite strong in terms of overall financial performance over the last three years.

Soaring profits

New SORL's net profit has soared over that period, jumping from just 870,000 yuan ($130,000) in 2023 to 42.51 million yuan in 2024, rising further still to 70.18 million yuan last year, representing eye-popping average annual growth of nearly 800%, albeit from a low base. The company's balance sheet improved in tandem, with total current liabilities falling steadily from 796 million yuan at the end of 2023 to 520 million yuan by April this year. Over the same period, its net current assets rose from 637 million yuan to 952 million yuan.

New SORL operates in a market that’s growing steadily, if slowly. The global commercial vehicle services market where it does business reached 3.29 trillion yuan in revenue last year, and is expected to average 3% annual growth to reach 3.83 trillion yuan by 2030. China’s slice of that market was worth 758 billion yuan, and it is expected to grow by a slightly faster 3.7% annually to 908.5 billion yuan over that time, according to third-party market data in the company’s preliminary prospectus filed on June 26.

As a commercial vehicle parts and services provider, New SORL is plugged into a network of over 3,800 upstream component manufacturers and more than 222,000 downstream end customers. It ranks first among commercial vehicle service providers in China, with 265 stores at the end of last year throughout most of China. The company also operates overseas, with a sales network covering 100 countries and regions. It services its store network with 241 warehouses across China.

As China’s largest company in its field, New SORL enjoys economies of scale. Its highly digitalized operational infrastructure and extensive supply chain network allow it to provide distribution, technical support and after-sales services more efficiently, enabling door-to-door delivery services in as fast as 30 minutes and no longer than 48 hours. The company is developing a massive 18,667-square-meter parts center in Shanghai as its global supply chain hub, which should increase its efficiency further still.

Auto parts capital

New SORL harkens from the city of Ruian in East China’s Zhejiang province, often called the country’s “capital of auto and motorcycle parts.” As early as the 1960s, local farmers were already using simple tools to set up workshops in their homes to make auto and motorcycle parts. The industry evolved from there with the introduction of modern manufacturing equipment that enabled mass production, laying the groundwork for the city we see today with over 4,000 auto parts enterprises.

New SORL grew up in that environment. Founder Zhang Xiaoping, now 63, graduated from Zhejiang Radio and Television University, now Zhejiang Open University, in 1986, and has over 40 years of experience in the auto parts industry. He joined New SORL’s predecessor, Ruian Hongqi Auto Parts Factory, as factory manager in 1988. The current company was established in 2016, and completed its national network coverage and launched an overseas business five years later.

New SORL is banking on its high profit growth and industry-leading status to draw investors to its listing. Yet its roadmap, while broadly positive, is also pockmarked with some less obvious concerns about its future.

Leading that list is the source of its skyrocketing profits, which isn’t from an explosive surge in revenue and instead relies on falling expenses. Most notably, the company’s selling and distribution expenses decreased from 300 million yuan in 2023 to 266 million yuan in 2024, and further dropped by 26% to 196 million yuan in 2025. In that process, selling and distribution expenses fell from 11.2% of revenue in 2023 to 7.8% last year, as the company streamlined and improved its sales division.

But such efficiency gains can only go so far without substantial growth in its core business to maintain its profit momentum.

Such growth is absent from New SORL's top line, which has stalled in the last two years. Its revenue rose by just 1.5% in 2024, before slipping into reverse with a 7.8% decline last year, largely the result of weakness in overseas markets. As that happened, the company’s gross profit margin also slipped, falling from 16.5% in 2023 to 16% the next year, and easing further to 15.8% in 2025.

The company ranks first nationwide in both commercial vehicle service revenue and store count. But even so, its share of the 700 billion yuan market, based on its latest revenue, is still minuscule, at just 0.2%. The top five companies collectively control less than 1% of the market as well, reflecting an extremely fragmented situation with fierce competition that’s likely to further pressure New SORL’s margins.

Sluggish auto sector

This type of fractured landscape with thousands of small companies means that relatively few have attained the mass to go public. Some auto-related listed peers include Zhongsheng (0881.HK) and Harmony Auto (3836.HK), but both are primarily engaged in auto trading, with after-sales services as an auxiliary business. Shares of both companies also currently trade relatively low compared with past levels.

That’s not surprising, since China’s auto sector has slowed considerably in recent years after notching breakneck growth in the 2010s, affected by factors such as weak consumption and overcapacity. That’s put pressure on most auto-related stocks, many of those down 20% to 30% or more over the past month, as new car sales plunged around 20% in the first five months of the year.

New SORL's listing as an automotive services provider is relatively new for Hong Kong, whose stocks from that sector are mostly actual automakers. On the plus side, the current sluggish market may make car owners delay replacing their vehicles, boosting demand for maintenance services and spare parts replacement that are New SORL’s focus. But the broader picture of a weak auto market, combined with investor focus on AI and other tech stocks, could translate to relatively weak demand for the company’s stock.

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The underwear maker defied a challenging market to post higher net profits, thanks to a tie-up with the U.S. underwear brand, but its overall business was under pressure

Key Takeaways:

• The firm’s annual revenue slipped and operating profit tumbled, as garment orders were hit by trade frictions and weakening consumer demand
• Victoria’s Secret China enjoyed rising sales, but the overall underwear segment was still sluggish

By Lee Shih Ta

Clothing manufacturers have been feeling the chill from economic headwinds, buffeted by the impact of trade tariffs and weak consumer confidence.

But a Chinese supplier of lingerie and sports bras has managed to increase its annual profits by more than 50%, outperforming other firms in the sector.

So what was the secret of its earnings success? It largely came down to being the sales outlet in China for the Victoria’s Secret brand of intimate apparel.

On the surface, business looks bright at Regina Miracle International (Holdings) Ltd. (2199.HK). Its annual results compared favorably with a 12% rise in net profit at clothing maker Crystal International (2232.HK) and a 6.7% decline at industry leader Shenzhou International (2313.HK).

But a deeper look into Regina Miracle’s annual earnings reveals a darker picture, with revenues and operating profit both falling.

Regina Miracle makes underwear for general and sports use, as well as bra pads, components for consumer electronics and various accessories for international brands. It prides itself on being involved in product design and development, not just taking orders as a contract manufacturer.

Still, revenue fell 1.6% to HK$7.72 billion ($984 million) in the year to the end of March, while gross profit dropped 5.1% to nearly HK$1.74 billion. Gross margin narrowed to 22.5% from 23.4%, while operating profit tumbled around 22% to HK$536 million, showing the strain on the garment manufacturing sector.

Weak market demand and tariff policies prompted some international customers to adjust their orders, the company said, adding that its Zhaoqing factory was still in the early stage of ramping up, weighing on gross margin.

Despite the pressures, net profit rose 53.9% to HK$283 million, boosted by a surge in sales at its joint venture with Victoria’s Secret, which handles the brand’s stores and online sales in China. Finance costs also fell to HK$255 million from HK$344 million, helping the bottom line.

Not so secret weapon

Victoria’s Secret China was the standout performer. The joint venture posted revenue of just under HK$2.8 billion in fiscal 2026, up 42.4% from the previous year, while net profit ballooned to HK$525 million from HK$85.6 million. Regina Miracle owns 49% of Victoria’s Secret China and recognized HK$237 million in associated profit in its income statement, equal to about 84% of its full-year net profit. Without that boost, the company’s earnings recovery would have looked far less convincing.

On the positive side, Victoria’s Secret China shows that premium brands and localized strategies can create earnings resilience, despite broader pressures on the apparel market. But questions remain over whether the performance can be sustained. The joint venture’s profits included HK$140 million in deferred tax assets related to tax losses from prior years, a non-recurring gain.

Intimate wear, which remains the company’s core business, lacks explosive growth potential. Revenue from the segment edged down 1.1% to just under HK$4.2 billion, accounting for 54.4% of total revenue. The company cited changes in client orders, offset in part by a stronger performance from core brands in the second half, pointing to some customer stickiness.

Sportswear could offer greater growth potential, having seen more dynamic consumption patterns in recent years. Regina Miracle’s revenue from sports products rose to HK$3.08 billion, accounting for 40% of total revenue and starting to close in on the scale of its intimate wear business. But gross margin for the segment slipped to 21.4% from 22.3%, reflecting ongoing shifts in product mix, costs and production efficiency.

As of the end of March, Regina Miracle carried net debt of HK$3.22 billion and a net gearing ratio of 103.8%, leaving it with a heavy interest burden. On the plus side, capital expenditure dropped to HK$273 million from HK$431 million, while the R&D department’s move from Shenzhen to Zhaoqing was largely completed. Still, related asset write-offs and compensation payments are not expected to wrap up until fiscal 2027, leaving lingering pressure from restructuring costs.

Investors were not overly impressed by the profit rise. Regina Miracle’s shares fell 1.7% on the first trading session after the results, closing at HK$1.73, and have declined 17.62% over the past year. The stock currently trades at about 8 times earnings, not far below the 8.9 times for Shenzhou International and 9.2 times for Crystal International.

Regina Miracle may have bottomed out but has not yet entered a clear upcycle. It cannot rely on Victoria’s Secret China to justify a higher valuation from here. Investors will be looking for proof that its expertise in high-end lingerie can translate into higher gross margins and a healthier balance sheet.

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The operator of China’s largest bar chain lost a key trademark court battle, as it brought in two new co-CEOs to try to revive its sinking business

Key Takeaways:

• Helens International replaced founder Xu Bingzhong with two new co-CEOs days after the company lost a case involving its namesake trademark
• The bar chain operator’s revenue fell 28% last year, while its adjusted profit was mostly stagnant

By Edith Terry

In September 2021, Helens International Holdings Co. Ltd. (9869.HK, HLS.SI) was riding high when it raised a foamy HK$2.51 billion ($320 million) in its Hong Kong IPO.

The leading bar operator had just become China’s first “pub stock,” and was a rising star soaking up money from a recently minted class of free-spending Chinese youth embracing Western bar culture. The company’s shares jumped 23% in their trading debut, as its market cap touched HK$30 billion ($4.4 billion), making it a winner with 1.8 billion yuan (264.9 million) in annual revenue and adjusted profit of 100.2 million yuan.

Fast forward five years when the froth is long gone, drained by a slowing Chinese economy plagued by increasingly cost-conscious consumers. Adding to its woes, the company lost a key trademark case involving rights to its Chinese brand name last week, as its founder, Chairman and CEO Xu Bingzhong was shown the exit door, replaced by two new co-CEOs on June 26.

The changing of the guard, despite the tumultuous way it happened, was welcomed by investors, since the company clearly needs some new blood at the top. One of the newly named co-CEOs, Wang Hao, was a former private domain consultant to coffee giant Luckin, while the other was company insider and executive director He Daqing. Helens shares rose by 20% in the five trading days after the pair of announcements.

Wang and He have their work cut out. Helens market cap currently hovers at around HK$2.2 billion – less than a tenth of its peak – and its shares are down more than 92% from their post-IPO highs. Its most recent financial report, for 2025, showed its revenue slumped by 28.3% last year to 539 million yuan, marking a fourth consecutive year of declines.

The news in its latest financial report wasn’t all bad, as Helens returned to the black last year with a profit of 33.9 million yuan, reversing a loss of 77.9 million yuan in 2024. But much of the swing owed to non-recurring and non-cash items, and the company’s adjusted profit rose by a less impressive 3.5% to 67.7 million yuan last year from 65.4 million yuan in 2024.

National expansion

Helen achieved its early success through a national expansion of its signature pubs from their origins in Beijing’s university district, tapping into a youth culture that was primed for clubbing. After-hours spending in the nation’s bar and pub market reached 112 billion yuan in 2024, and was estimated at 117.5 billion yuan last year, according to the Hong Can Network consultancy.

But tastes are changing among China’s unpredictable Gen Z consumers, and low-alcohol beverages like wines and craft beers and have become the fastest growing segment, according to Chinese media. What’s more, many of those drinks are being consumed in non-traditional bars, which include bookstores, art exhibitions and music performances. And less people are splashing out big money on drinking overall, with 60% of people recently surveyed by leading Shanghai media The Paper saying they spent less than 1,000 yuan annually on alcohol.

Helens has been swimming against the tide in terms of changing consumption preferences. Beer, which was Helens’ core product in 2021, accounted for just 6.5% of revenue last year, while spirits made up 28.1% and third-party alcoholic drinks were 16.3%. One-third of its revenue came from franchise fees, with operators paying their own costs and making their own decisions about product mix.

Same-store sales from the company’s self-operated and franchised bars tumbled 18.4% last year, while the total number of bars rose from 560 at the end of 2024 to 578 as of March this year. Average daily sales for its self-managed stores rose from 7,000 yuan in 2024 to 7,700 yuan in 2025. But franchisees for its HiBeer brand, which makes up the bulk of its stores, were struggling, with daily sales dropping from 5,000 yuan in 2024 to 4,100 yuan last year.

Unsettled brew

While business was already hurting, the trademark court loss adds yet another element of uncertainty into Helens’ unsettled brew. That court battle began in 2023, and involves a case brought by the similarly named Helen Dazzling Hotel Co., whose hotels in Chengdu, capital of Sichuan province, also use the Helen name. The hotel company registered the Helen trademark in 2016, while Xu only registered his Helen’s trademark in 2018, even though Xu Bingzhong set up his first bar in Beijing back in 2009.

The China National Intellectual Property Administration, which was hearing the matter, ruled against Helens International in May 2025. Helens then appealed the ruling with the Beijing Intellectual Property Court, which ruled in its favor. But the hotel company appealed that decision to the High People’s Court in Beijing, which ruled against Helens.

Helens said the latest ruling would “have no material impact” on its business. But with its franchisees already under pressure, any uncertainty over the trademark’s future might lead some to leave the brand. The litigation affected only the versions of the company’s Chinese name, Hailunsi, with the English unaffected.

The management change removes Xu Bingzhong from his CEO role, though he remains an executive director and the company’s chairman. The two new co-CEOs will be responsible for day-to-day management and “steady development” of the business, according to the announcement of the change. Wang Hao specializes in digital marketing, while He Daqing, who joined Helens in 2020, comes from a media background, including work as a senior editor at the prestigious Xinhua News Agency.

The pair has their work cut out for them at company known for its frequent pivots under Xu. Now 52, Xu worked in the Chinese military and as a security guard before moving to Laos in 2005 to open a bar. He used money from his first business to open his first Helen’s Bar in the Wudaokou area of Beijing’s university district.

His early business strategy was simple – offer half price beer to become a fixture in student life. His initial business model when he began to expand used franchised partnerships. But he switched to self-managed stores, and then to an “asset-light” franchise model. Along the way, the company’s HiBeer segment became its dominant brand, accounting for about 80% of its stores, largely operated by franchisees. At the end of March this year, only 108 of the company’s 578 bars were directly operated, while the remaining 470 were franchised or partner stores.

Higher average daily sales for Helens self-managed bars suggests another turn away from franchised operations may be in the cards under the new co-CEOs. Franchised operations contributed 183.3 million yuan in revenue last year, compared with 355.6 million yuan for Helens’ self-managed bars.

But more self-operated outlets would mean taking on more costs, more property leases, and more workers, while the franchise operations put little pressure on Helens’ balance sheet. While investors seemed to like the arrival of fresh faces in the CEO’s office, the new chief executives will have to get to work quickly restoring Helens to its earlier post-IPO glory.

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"It's the kind of market that has always promised better tomorrows but has never been able to deliver." – on China’s used-car market

Key Takeaways:

• DSC's disastrous Nasdaq debut highlights the structural and economic challenges facing Chinese used-car platforms
• Rumors of Nike cutting online distributor ties in China reflect broader struggles by Western brands to adapt to shifting local consumer preferences

By Doug Young & Rene Vanguestaine

We're currently witnessing a fascinating, albeit painful, recalibration of how companies navigate the Chinese consumer market. Wall Street recently hosted its first major Chinese IPO in over a year — a used-car platform whose disastrous debut underscores the deep vulnerabilities in China's automotive sector. Meanwhile, rumors are swirling that global sportswear giant Nike (NKE.US) might be radically restructuring its online distribution networks in China. Both developments point to a shared reality: operating in the world's second-largest economy has become remarkably unforgiving amid weak consumer confidence, brutal price wars and shifting local tastes.

Consider the landscape on Wall Street. Until recently, the U.S. market had gone for more than a year without a major new Chinese listing. That drought ended when a used-car trader called DSC (DCS.US) made its Nasdaq debut last week, raising a relatively large $50 million. We haven't seen anything that large since robotaxi operators WeRide (WRD.US) and Pony AI (PONY.US) made much bigger listings worth hundreds of millions of dollars in late 2024.

DSC’s listing had quite a few big names attached, chiefly backing from Alibaba's Ant Group financial affiliate, which indicated it would buy more than half of the IPO shares. The company also secured a decent group of underwriters — including Deutsche Bank, CICC, and ICBC — which, while perhaps not tier-one, are still respectable. Yet, in a somewhat ominous sign, the stock cratered. The shares lost nearly half their value on their first trading day, fell another 20% the next day, and by day three were down 65%. Even after this massive sell-off, the stock still trades at a relatively high price-to-sales (P/S) ratio compared to its Chinese peer Auto Home (ATHM.US), which is older and actually profitable.

We believe DSC simply got caught in a perfect storm. Their basic pitch is an AI story — applying artificial intelligence to a fragmented, inefficient market to simplify time-consuming and expensive tasks. Unfortunately, they came to market just as an AI backlash has been growing in the U.S. for several weeks. Furthermore, investors remain highly sensitive to traditional issues affecting Chinese U.S. listings, chiefly the variable interest entity (VIE) structure that most companies use.

More fundamentally, the Chinese car market is in the midst of a ferocious price war. Manufacturers like BYD (1211.HK; 002594.SZ) are selling their cheapest models for the equivalent of less than $10,000. This has brought the cost of new cars down to levels many people can afford, shrinking the once-sizable price differential between new and used cars. Combined with slashed government EV subsidies and consumers worrying about their jobs and the healthcare system, it's a very tough story to sell.

This used-car market has always promised better tomorrows but has never delivered. It's highly fragmented, filled with mom-and-pop shops, and plagued by a lack of trust. There are some cases like Uxin (UXIN.US), which made its U.S. IPO eight years ago. While they made progress in standardizing inspections and recertifications, we don't think they've ever had a sustainably profitable year. They've been kept on life support by local governments and backers like Nio Capital. Another player, Cango (CANG.US), left the market completely. Even after 14 years in business, DSC is also still losing money. Building the necessary infrastructure — super reconditioning centers and upfront inventory — is an incredibly expensive proposition.

Still, there's a silver lining for future listings. DSC noted in its prospectus that it applied for and passed Beijing's required data security review for companies with over 1 million customers. This signals that China is still allowing non-controversial companies — particularly those that don't hold strategic national importance — to list abroad. Moving forward, we might see more listings from consumer-focused companies or those not aligned with national priorities like green energy and chips.

Nike's potential pivot highlights retail woes

Moving from cars to consumer closets, another prominent brand is struggling to find its footing. Last week, Topsports (6110.HK) — one of Nike's oldest and largest distributors in Mainland China — cited media reports in a stock market filing noting the U.S. sportswear giant may stop selling its products through online distributors in China starting next year. Topsports clarified that Nike hasn't officially informed them of such a move. But investors still dumped the stock, which tanked 15% before a trading halt. The company noted that online Nike sales account for about 22% of its revenue.

While this remains a rumor, it aligns with Nike's global and local rough patches. The company changed its CEO about a year and a half ago in late 2024. Under the previous leadership, Nike over-focused on direct-to-consumer sales, lifestyle products, and digital channels, ultimately weakening its relationships with the traditional big box retailers that historically pushed its products.

In China, the dynamic is even more complex. For a long time, Western goods from Nike and Adidas (ADS.DE) were considered premium, must-have brands. But Chinese consumers have realized that domestic brands are getting better. Competitors like Li Ning (2331.HK), 361 Degrees (1361.HK), Anta (2020.HK) and Xtep (1368.HK) have invested heavily in technology and styling, signing top athletes to boost their image. The landscape has shifted so much that Puma is in the process of being acquired by a Chinese brand.

Furthermore, fashion trends have drastically changed. Growing categories now include trail running, hiking, outdoor activities and tennis — none of which have traditionally been a strong suit for Nike. Newer entrants like On Holdings (ONON.US), Hoka, and Lululemon (LULU.US) have swooped in to steal market share.

If Nike is indeed overhauling its partnerships, it isn't alone. We're seeing a growing number of Western brands changing their China management or relying more on domestic partners who possess a much better understanding of today's market. Starbucks and other brands in the food sector have been struggling along those same lines. Ultimately, both DSC's Wall Street woes and Nike's retail recalibration prove that succeeding in China today requires adapting swiftly to a profoundly changed consumer.

The company has filed for a Hong Kong IPO, cultivating a second growth curve in high-margin areas like scalp care, as its core maternal and infant products business stagnates

Key Takeaways:

• Kidswant has filed to list in Hong Kong, reporting its revenue rose above 10 billion yuan last year, even as growth for its core maternal and infant business slows
• The company is looking for new growth engines in high-margin businesses such as scalp care and marketing services

By Lee Shih Ta

China’s fertility rate continues to sink as a growing number of people opt out of parenthood. And yet the market for maternal and infant products will always be lucrative for companies that provide items desired by remaining parents, who are often willing to spend lavishly on their children. That predicament presents a core contradiction tugging at Kidswant Children Products Co. Ltd. (301078.SZ).

Last week, the maternal and infant retailing leader renewed its application for a Hong Kong IPO, which would complement its existing listing in Shenzhen. This time around, Kidswant is aiming to lure investors with new financials showing it broke through the 10 billion yuan ($1.47 billion) revenue mark last year. But investors may be unimpressed, worried about the stagnating Chinese market for the company’s core maternal and infant products.

The company’s business includes sales of products like milk powder, diapers and children's clothing, alongside services related to areas like child development and parenting. Despite China’s falling fertility rate, the company has managed to keep its revenue growing. The figure reached 10.27 billion yuan last year, up about 10% from 2024. Its net profit last year jumped by an even bigger 64.2% to 298 million yuan. The revenue growth slowed to 2.46% in the first quarter of this year, hitting 2.46 billion yuan, though its profit continued expanding at a healthier clip, rising 56.79% year-on-year to 48.62 million yuan.

Kidswant ranked first in China's maternal, infant and child products and services market last year, generating 13.7 billion yuan in gross merchandise value (GMV). But the market remains extremely fragmented, reflected by the company’s miniscule share of just 0.3%, in a market where the top five players combined controlled just 1%. That’s a good thing for leaders like Kidswant, showing they could grow through consolidation in a market where overall growth remains weak. The Chinese market for maternal, infant, and child products and services averaged 3.3% annual growth from 2020 to 2025, and is expected to grow 4% annually from 2026 to 2029, according to market data in Kidswant’s listing document. Consolidation may offer one way to outperform those low growth rates, as well as finding more consumption scenarios from within the market catering to new parents and their infant children.

As a result, Kidswant has positioned itself as a parent-child family services provider. By the end of 2025, the company had amassed over 98 million registered members and more than 12 million active members, while its offline sales and service network reached a total of 3,821 stores, effectively covering nearly all of China.

The company's strategy is to extend one-off transactions into sustained family consumption over time. In 2025, total revenue from sources other than the sales of maternal and infant merchandise accounted for approximately 15.6% of the company’s total. While that remains relatively small, it nonetheless forms the nucleus of a transformation Kidswant is trying to make.

Family care scenarios

As part of that transformation, Kidswant acquired the Hairology Group a year ago, extending its business to broader adult family consumption. Hairology provides scalp and hair care products and related services. Following the purchase, Hairology contributed 379 million yuan in revenue last year, accounting for 3.7% of the total. While small in terms of revenue contribution, the segment was a bigger contributor to Kidswant’s bottom line, thanks to its gross margin of 67.2% – more than triple the 21.2% gross margin for the maternal, infant and child business.

The scalp care market also has more potential than maternal and infant products. Data cited in the listing application shows China's scalp and hair care market was worth 67.5 billion yuan in 2025, and is expected to grow 11% annually to reach 102.7 billion yuan by 2029. In short, the Hairology acquisition enables Kidswant to pivot from the low-margin and slow-growth maternal and infant retail business into the higher-margin and faster-growing domain of family healthcare scenarios.

The reality is that the company’s core maternal and infant business has been facing pressure for a while now. Revenue from that segment rose 5.88% last year, lagging the company's overall growth rate. Meanwhile, the segment's gross margin declined from 23.1% in 2024 to 21.2% last year, with the gross margin for the sale of maternal, infant, and child merchandise similarly dropping from 21.1% to 19.4%.

But such transformations also come at a cost. From 2023 to 2025, Kidswant's net cash flow generated from operating activities grew from 804 million yuan to 1.44 billion yuan, proving that its core business still possesses strong self-sustaining cash-generation capabilities. But over that time, cash outflow tied to investing activities grew substantially from 1.2 billion yuan to 1.84 billion yuan, causing the company’s cash to plunge by more than half from 2.29 billion yuan to 1.01 billion yuan. The company's debt-to-asset ratio similarly climbed from 56.8% at the end of 2024 to 62.7% last year.

At the same time, the company’s acquisitions of Hairology and another company, Fortune Biotechnology, caused its goodwill to balloon from 782 million yuan at the end of 2024 to 1.93 billion yuan at the end of 2025, raising the prospect of future asset impairment charges.

Kidswant's decision to pursue a Hong Kong listing looks aimed at supporting its ongoing transformation. The application indicates that funds raised will be used for product innovation, sales and service network expansion, strategic acquisitions and the enhancement of digitalization capabilities, among other things.

Valuation could be one of the company’s biggest challenges. Hong Kong-listed Goodbaby International (1086.HK) recorded revenue of HK$8.66 billion ($1.1 billion) last year, lower than Kidswant's 10.27 billion yuan. Goodbaby's current market capitalization sits at just HK$1.37 billion, giving it a relatively low price-to-earnings (P/E) ratio of about 6 times. That could pose problems for Kidswant if it hopes its Hong Kong listing can match the market capitalization of more than 8 billion yuan and P/E ratio of 28 for its Shenzhen-listed shares.

This big gap implies that even if Kidswant manages to list in Hong Kong, it’s unlikely to achieve a valuation on par with its Shenzhen-traded shares by solely relying on its core maternal and infant business. Ultimately, its ability to attain higher multiples than rivals like Goodbaby may depend on whether its new businesses, like scalp care, can meaningfully lift its overall gross margins and add some new life to its growth trajectory.

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Shares of the owner of an operating system used by more than half of China’s used car dealers lost nearly half their value in their first trading day on the Nasdaq

Key Takeaways:

• DSC raised about $50 million in its Nasdaq IPO this week, making it one of the largest new listings by a Chinese company on Wall Street in more than a year
• The company’s stock fell 47% on its first trading day, as investors balked at its aggressive pricing and stalling growth in China’s sputtering car market

By Doug Young

Just when the U.S. market for Chinese IPOs looked dead, along comes a relatively large listing with quite the A-list of players. We’re talking about DSC Holdings Ltd. (DSC.US), owner of China’s leading operating system (OS) for used car dealers, which made its Nasdaq trading debut on Thursday, just a month after making its first public filing for the IPO.

DSC raised a tidy $50 million in the listing, which isn’t huge compared with the many mega-listings we’ve seen in Hong Kong lately. Still, it’s the largest we’ve seen by a Chinese company on Wall Street for more than a year. But reflecting the many issues dogging such listings, DSC’s stock lost nearly half of its value on its first trading day, closing at $9.06 after selling 3 million American depositary shares (ADS) for $17 each.

This kind of early sell-off has become all too common for new Chinese listings on Wall Street, leading many – including Washington politicians and the securities regulator – to suspect behind-the-scenes manipulation. Both the U.S. Securities and Exchange Commission and the U.S. House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party have taken steps to tackle the problem, which has sharply reduced the number of new listing applications, especially by smaller companies.

Truth be told, DSC’s new listing doesn’t appear to fall into the category of stock manipulation, despite its big first-day decline, due to its A-list of actors with quite respectable backgrounds. The deal was underwritten by leading Chinese investment bank CICC and Deutsche Bank, also a very respectable Western brand. By comparison, most of the other Chinese listings we’ve seen lately have been underwritten by small boutique brokerages.

DSC is also backed by some very respectable investors, led by Ant Group, owner of the Alipay payments service and the financial affiliate of e-commerce giant Alibaba. Ant Group owned 8.8% of DSC’s stock after the listing, and had indicated it was willing to buy about $30 million worth of IPO shares, or about 60% of the offering. DSC’s other major pre-IPO investors included Primavera, 5Y Capital and Cygnus Equity, all also respectable names.

Finally, there’s the company’s founder, Yao Junhong, who has strong credentials in the auto market from his former role as co-founder and COO of Car Inc., one of China’s leading car rental agencies, before he set up his company in 2012.

Unlike many of the other recent Chinese applicants for Wall Street IPOs, DSC is also quite large and has access to large amounts of data that necessitated a data security review by China’s cybersecurity regulator. In its most recent prospectus, DSC specified that it underwent and passed such a review, and the company also received required clearance for the listing from the China Securities Regulatory Commission (CSRC) in late April.

So, why exactly did DSC’s stock tank in its trading debut, and does its listing mean the U.S. market for major Chinese IPOs may still have some life left?

Tough car market

We’ll tackle the tanking stock issue first, which appears related to an aggressive valuation for the stock, and also to weak prospects for the company’s core business in China’s sputtering car market. The company is still losing money, which is never that encouraging for a 14-year-old enterprise that says its core DaFengChe operating system is “embedded in the daily operations” of more than half of China’s used car dealers.

Even after the big first-day drop, the stock still trades at a price-to-sales (P/S) ratio of 4.5, based on its 2025 sales. That’s nearly double the 2.5 for Autohome (ATHM.US; 2518.HK), which is seven years older than DSC and is profitable, and also derives most of its money from transaction-based fees related to new and used car trading.

Then there’s the issue of DSC’s financials, which don’t exactly inspire confidence. That’s not really the company’s fault, and more the result of its reliance on a Chinese car market that has suddenly slammed on the brakes after zooming for most of the first two decades of the 21^st century. As the market has skidded, including double-digit declines for new car sales this year, many of the new and used car dealers that are DSC’s biggest customers have begun losing money and are sharply reining in their spending.

The company’s revenue rose slightly in the first quarter of this year to 146.6 million yuan ($21.6 million) from 142.7 million yuan a year earlier, which isn’t bad considering the sorry state of the market. But it’s hardly the kind of high growth that gets investors excited. The company offers its DaFengChe OS to used auto dealers for free, and makes most of its money by charging fees for marketing services, as well as referral services for things like car inspections and certification.

While its revenue rose slightly, the company’s number of monetized dealers and brokers, as well as its active users, both fell year-on-year in the first quarter. Its average revenue per user (ARPU) rose to 3,399 yuan in this year’s first quarter from 2,872 yuan a year earlier. But the low amount of both figures shows car dealers and brokers are hardly spending heavily on DSC’s services.

As the industry suffers, DSC’s gross margin dropped to 36.8% in the first quarter from 40.5% a year earlier. On the bottom line, its 29.2 million yuan loss in the latest quarter narrowed from a 39.6 million yuan loss a year earlier. But as we’ve already noted, a 14-year-old company with such strong credentials really shouldn’t be losing money at this stage.

That brings us back to the second question we raised earlier, namely, whether DSC’s listing could auger a revival of major Chinese listings on Wall Street. In our view, the answer is a definite “maybe.” This listing shows that Beijing is still willing to green-light major new listings by Chinese companies on Wall Street, especially from more mature sectors like cars.

But the bigger obstacle could be China’s economy, which underpinned strong U.S. investor appetite for China stocks when things were booming. But with that same economy now running low on fuel, U.S. investors will be far more selective on any new “made in China” stocks – especially ones priced as aggressively as DSC’s.

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The Chongqing-based maker of compound seasonings for restaurants hopes to follow in the footsteps of rival Haitian’s $1.28 billion listing last year

Key Takeaways:

• Juhui has filed for a Hong Kong IPO, betting on the $840 billion domestic catering market for growth despite margin pressure from competition
• The company makes customized seasonings for restaurant chains, whose penetration rate in China is relatively low compared to mature markets like the U.S. and Japan

By Edith Terry

In July 1999, two chemistry majors from China’s Southwest University, Gou Zhongjun and Wang Bin, started working part-time helping hot pot restaurant owners create their soup bases, which varied from chef to chef. Orders for their unique business blend quickly poured in, and they began serving as silent partner to popular local hot pot brands like Liuyishou, Chongqing Little Swan and Chengdu-based Shizilou.

The pair set up their own company, Juhui Corporate Management, in 2008, and went on to serve some of China’s fastest growing national restaurant chains, from hotpot specialists Haidilao and Xiabuxiabu, to others like the well-known LXJ chicken chain.

Now, Juhui Food Technology Co. Ltd. has become China’s fourth largest seasonings maker and is seeking to follow larger rival Haitian (3288.HK; 603288.SH) to the capital market with plans for a Hong Kong IPO. State-owned Haitian is the sector’s leader, raising a spicy HK$10 billion ($1.27 billion) in its Hong Kong listing a year ago.

Whether Gou and Wang can do the same will depend on whether the market likes their more niche business supplying compound food seasonings, which makes up about a quarter of the overall domestic seasonings market. Juhui is the largest company in that niche, although competitors like Yihai International (1579.HK) and Teway Food (603317.SH), which is also eyeing a Hong Kong listing, are close behind.

Juhui, which filed its preliminary prospectus last week, is hoping investors will value its track record of industry experience and the low penetration rate of chain restaurants in China, which are its main customers, relative to mature markets like the U.S. and Japan.

Its 2025 profit of 125 million yuan and a price to earnings (P/E) ratio of 21, comparable to Haitian, would value the company at about 2.6 billion yuan ($383 million), a tiny fraction of the roughly 200 billion yuan for the much larger Haitian, the nation’s leading soy sauce maker. Then again, Haitian is much older and more established, with more than a century of history, compared with just two decades for Juhui.

Strong growth potential

China’s compound seasoning market was worth 130.2 billion yuan last year, accounting for about a quarter of an overall national seasonings market worth 511.3 billion yuan, according to third-party market research in its prospectus. While China’s overall seasonings market is expected to grow 6.2% annually through 2030, compound seasonings, which include more than a single ingredient, are expected to grow at a faster 9.8%.

The increasing demand for pre-mixed seasonings partly reflects demand from younger consumers who don’t necessarily feel a need to make everything from scratch. But Juhui sells strictly to other businesses, meaning its growth is driven by the rapid growth of catering enterprises that depend on its consistent quality and customization abilities.

Mid-range restaurant chains with between 500 and 1,000 outlets increased their store count by 32.6% annually last year, with chains operating 101 to 500 stores increasing by 28.3%, according to a 2026 report by the China Chain Store & Franchise Association (CCFA). Overall, chains boosted their share of China’s restaurant market from 21% in 2023 to 25% last year, according to the CCFA.

Chain restaurants accounted for just 22.9% of China’s total last year, well below 56.9% in the U.S. and 53.2% in Japan, which Juhui says offers significant growth potential for its business, which comes mostly from chain operators.

That kind of data certainly spices up Juhui’s IPO application more than the company’s actual revenue and profits, which were relatively flat between 2023 and 2025. Both revenue and profit actually dipped last year, the former down 2.6% to 1.11 billion yuan and the latter down 18% to 125 million yuan. But things picked up in the first three months of this year, with revenue up 21% year-over-year to 297 million yuan and profit up 71% to 29.7 million yuan.

The company’s gross profit margin also flatlined between 2023 and 2025, and then fell slightly to 30.2% in the first quarter from 30.3% a year earlier. Falling average selling prices for the customized compound seasonings that make up 95% of Juhui’s revenue are a factor that continues to pressure its margins. Prices for those customized offerings fell from 21.6 yuan per kilogram in 2023 to 19.9 yuan last year, and dipped further to 19.3 yuan per kilogram in the first quarter of this year. The company cited competition and its desire to gain market share as key factors behind the price declines.

Strong customer retention

While such numbers don’t look too impressive, Juhui says it’s equally important to look at its customer retention. Of the 130,000 restaurants it currently serves, the annual customer repurchase rate has risen sharply from 54.2% in 2023 to 72.1% last year.

Juhui’s makes its customized products at an 84,900-square-meter factory in its hometown of Chongqing, while standardized products are made at a 33,000-square-meter factory. Actual customization takes place at a network of 30 centers across China with 100 R&D specialists and professional chefs, which Jiuhui says is the largest such network in the industry. It says that network functions as “on-the-ground R&D consultancies for our customers, providing free menu development support, co-creation of new recipes, and troubleshooting of operational challenges on site.”

One place where Juhui really shines is on its balance sheet. Its net assets nearly doubled from 333.4 million yuan in 2023 to 627.3 million yuan in the first quarter of this year, largely the result of buying out preferred shares from earlier investors that included CPE Investment and Matrix Partners China. That helped the company shrink its debt from 553.4 million yuan in 2023 to 157.3 million yuan in the first quarter of 2026, and left Gou and Wang with ownership of 80% of their company.

While many of its largest customers are growing, one challenge for Juhui could be that some of the largest chains are focusing their growth outside China. By comparison, chain restaurants in the top category of 10,000 outlets and more have kept their domestic store count relatively stable, according to the CCFA report.

An example is Haidilao, which spun off its overseas operations into a separately listed company in 2022. That operation now has 127 outlets in 14 countries, mostly in Southeast Asia. While Juhui may be able to serve those customers for their overseas operations, such companies could also let their offshore divisions look for suppliers that can produce locally and have a better understanding of local tastes.

On the whole, Juhui’s story offers a mixed packet for investors. On the one hand it’s in a market segment with big growth potential. But it’s far from clear that it can grow in sync with that market, as it races to stay ahead of the domestic competition.

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The juice concentrate giant plans to pay up to 800 million yuan for a controlling stake of printed circuit board materials supplier Yongqiang Technology

Key Takeaways:

• Andre Juice said it will acquire a controlling stake in Yongqiang Technology for 600 million to 800 million yuan, sparking a multi-day rally for its stock
• Yongqiang Technology recorded a net profit of 1.93 million yuan in this year’s first quarter, marking its first-ever quarter in the black

By Lee Shih Ta

The AI boom is seeping into just about everything these days, pumping up valuations of the many companies that can claim to be part of a vast related supply chain covering everything from chips and servers to printed circuit boards (PCBs). One of the more unusual twists in that flow is taking a company best known for its juice business into the far different realm of semiconductor materials.

That’s the big story from Yantai North Andre Juice Co. Ltd. (2218.HK; 605198.SH), China's leading juice concentrate maker, which last week announced its plan to acquire Ningbo Yongqiang Technology Co. Ltd., a PCB materials maker, leaving many investors enthusiastic but also raising a few eyebrows.

According to the announcement, Andre will pay between 600 million yuan ($89 million) and 800 million yuan for a controlling stake in Yongqiang, marking its entry into the high-speed and high-frequency, as well as the bismaleimide triazine (BT), substrate materials markets. The company said it must pay a 45 million yuan deposit within two days of signing an agreement, with the final transaction price contingent on the result of subsequent asset appraisals.

Following the announcement, Andre's Shanghai-listed shares rose by their daily 10% limit for three consecutive days, pushing its market capitalization above 21 billion yuan at one point. Its Hong Kong-listed shares surged more than 80% intraday on June 16, the day after the announcement, before ultimately closing 25.8% higher for the day, reflecting high investor hopes for the plan.

The investor enthusiasm owes largely to Yongqiang’s position in the AI supply chain. Surging demand for AI servers has made PCBs and copper-clad laminates (CCL) into overnight investor darlings, and Yongqiang sits squarely within that value chain.

Public records show that Yongqiang was established in 2019, primarily engaged in the development and production of electronic interconnection materials. Its core products include CCLs and prepregs, which are both used to make the PCBs that are an important component of computers and servers. The company has annual production capacity of 10 million square meters of high-speed, high-frequency and BT substrate materials from its base in the Eastern Chinese port city of Ningbo.

Major clients

Yongqiang’s clients include such major PCB makers as Victory Giant and Shennan Circuits, with its products ultimately used in AI servers, data centers and 5G communications equipment. Higher signal transmission requirements for AI servers have made producers of high-frequency and high-speed CCLs a key beneficiary of the AI boom.

Yongqiang has tapped into a hot sub-sector of the AI supply chain, but its financials may not yet justify the market's enthusiasm. According to data in Andre Juice’s announcement, Yongqiang generated 224 million yuan in revenue in 2025, but suffered a net loss of 66.95 million yuan — a deficit equal to nearly 30% of its revenue that year. In the first quarter of this year, the company recorded revenue of 43.24 million yuan, achieving its first-ever quarterly net profit of 1.93 million yuan.

Yongqiang’s net assets also rose modestly from 209 million yuan at the end of last year to 212 million yuan at the end of March. But the scale of its profitability clearly remains limited, and its operating cash flow has yet to show significant improvement, indicating the company is still finding its place in the PCB supply chain.

It’s worth noting that just a month before Andre's announcement, another suitor, Shenzhen-listed Yanjan New Material Co. (300658.SZ), called off its plan to purchase 98.54% of Yongqiang. Yanjan cited the failure of all parties to reach a consensus on core terms, such as performance commitments and transaction valuation. That appears to show that Andre only stepped in after the previous acquisition attempt fell through, suggesting some significant room for variation in final appraisals about Yongqiang’s valuation and performance.

Profitable juice business

From Andre Juice's perspective, the company isn’t under any urgent pressure to make such an unusual pivot simply to survive. As one of the world's major juice concentrate suppliers, the company’s operations have been quite steady over the last few years. Its revenue last year totaled 1.68 billion yuan, up 18.3% from 2024, while its net profit rose 26.7% to 330 million yuan. Its revenue and profit fell by 23.3% and 15.5% in the first quarter of 2026, respectively, affected by industry cycles and a high base effect. But the company remained profitable, and the fundamentals of its core business showed no signs of significant deterioration.

All that said, the proposed Yongqiang investment would be substantial for Andre. At the end of March this year, Andre's combined cash and tradeable financial assets totaled about 717 million yuan, roughly equal to the expected transaction price of 600 million to 800 million yuan. More importantly, the company candidly admitted to its lack of experience in such a different sector, signaling the very real potential for future integration risks.

Following the big post-announcement rally, Andre Juice’s Hong Kong shares currently trade at a forward price-to-earnings (P/E) ratio 24.8 times, which looks quite high for a traditional consumer products maker. But it’s quite reasonable for a PCB substrate maker, many of which now trade at even higher multiples, like Kingboard Laminates (1888.HK) at roughly 110 times. Such high multiples reflect big investor hopes that companies like Kingboard will become major beneficiaries of future growth in the AI supply chain.

For Andre Juice, the greatest appeal of Yongqiang lies in the opportunity to break out of its traditional consumer space into a high-tech sub-sector with an entirely different valuation logic. This explains why an acquisition plan so fraught with uncertainties was still able to spark a massive rally for Andre’s stock. But crossing from juice to PCBs is not just a huge leap in terms of industries, but also presents two drastically different market types, each with its own very different rules. That means that for Andre, completing the acquisition might just be the beginning. The real challenge will be establishing a firm foothold in a market where rules of engagement are far more complex than for the far simpler juice industry.

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The budget smartphone maker has renewed its application for a Hong Kong IPO, reporting revenue for its core Africa market rose last year, as all of its other markets fell

Key Takeaways:

• Transsion has filed for a Hong Kong IPO, reporting its revenue rose 25% in the first quarter of 2026 after returning to growth in the second half of last year
• The budget smartphone maker controlled a massive 61.5% of Africa’s smartphone market by unit shipments in 2024, but just 22.5% of the market by revenue

By Doug Young

Investors may be flocking to AI and chip stocks these days, but that high-tech preference isn’t finding its way to the older and more mature smartphone sector. That could bode poorly for budget smartphone maker Shenzhen Transsion Holdings Co. Ltd. (688036.SH), as it renews its bid to list in Hong Kong, which would complement its existing listing in Shanghai.

Truth be told, the company’s most recent financials, contained in an updated Hong Kong IPO preliminary prospectus filed last week, don’t look too bad. Its revenue began to rebound in the second half of last year and continued to rise by a strong 25% in the first quarter of 2026, reversing a year of declines. That looks quite strong when you consider that revenue for Xiaomi (1810.HK), the company’s closest publicly traded rival, reported that revenue for its core smartphone business fell 12.5% in the first quarter.

Perhaps in recognition of its relatively strong recent performance, Transsion’s Shanghai-listed stock is “only” down 34% over the last 52 weeks, compared with Xiaomi’s larger 54% decline. But both of those large declines show that lower-end smartphone makers have fallen out of favor with investors.

On the whole, smartphones are increasingly seen as a rapidly maturing product category, without much room for major innovation. As the industry increasingly matures, we’re almost certain to see a new generation of manufacturers from lower-cost markets like India rise to challenge the Chinese brands that now dominate the lower end of the spectrum, including not only Transsion and Xiaomi, but also others like Vivo and Oppo.

On top of that broader macroeconomic factor, the entire industry is also being challenged these days by soaring memory prices, which are the single largest cost for most manufacturers. Transsion’s latest listing document shows that its costs for memory chips rose about 10% last year, following an even larger rise in 2024. In that process, memory rose to account for 28% of its raw material costs last year from 21% in 2023.

Higher-end smartphone makers like Apple (APPL.US) and Samsung (005930.KS) have been able to absorb those higher memory costs without raising their prices by sacrificing some of their margins, which are already quite high. But budget players like Transsion have much lower margins, and thus are having to raise their prices to avoid falling into the red, which is weighing on their sales.

Transsion is the brainchild of founder Zhu Zhaojiang, whose history in China’s mobile communications sector dates back to his work at Ningbo Bird, one of the country’s early leaders in cellphone space. Simpler feature phones, which are the precursor to today’s smartphones, still dominated the market back then, and Zhu used his experience to create products targeting the African market that was neglected by most major cellphone makers at the time.

The company quietly rose to dominate the lower end of Africa’s smartphone market with its Tecno, Infinix and Itel brands, and was the top seller on the continent in terms of unit sales in 2024 with a massive 61.5% of the market, according to its listing document. But reflecting its status as a budget brand, it only controlled 22.5% of the market in terms of revenue, making it the second-largest player that year.

Smartphone transition

To broaden its base, boost its margins and appeal to increasingly affluent consumers, Transsion has been slowly phasing out its feature phone business to focus on smartphones. It has also been trying to diversify geographically beyond Africa, though that campaign has been running into headwinds lately as it faces greater competition in those markets.

Smartphones accounted for about 84% of the company’s revenue in 2025, while feature phones made up just 5.5%. As it has moved up the value chain, and has also been forced to raise prices in response to rising memory costs, the average selling price (ASP) for its smartphones rose to 566 yuan ($83.62) last year from 544 yuan in 2024. But that latest price is still less than half the ASP of 1,310 yuan for Xiaomi’s smartphones in the first quarter of this year, showing that Transsion remains stuck in the smartphone cellar.

At the broadest level, Transsion’s overall revenue returned to growth in the second half of last year, after declining in the second half of 2024 and first half of 2025, based on calculations using its previously published data. Its revenue grew 7% in the second half of last year to 36.5 billion yuan from 34.1 billion yuan a year earlier. The growth rate then accelerated to 25% in the first quarter of this year, as the figure rose to 16.2 billion yuan during that period from 13 billion yuan a year earlier, according to its latest quarter results posted to the Shanghai Stock Exchange.

After declining steadily between 2023 and 2025, the company’s gross margin also rebounded to 22.0% in the first quarter from 19.3% a year earlier, showing its ship was steadying.

Geographically, however, Transsion’s “Out of Africa” story is rapidly running out of steam. Africa was the company’s only major market where revenue rose last year, climbing nearly 10% to make up about 38% of its sales. By comparison, revenue from Emerging Asia Pacific markets, its second largest region, fell 3.6% to make up 36% of sales, while the Middle East and Latin America fell 7.1% and 24%, respectively.

In addition to the challenges from competitors, Transsion also faces a series of patent infringement lawsuits in Europe and Southeast Asia filed by telecoms giant Ericsson and InterDigital in 2025 and 2026. China’s securities regulator reportedly requested additional information about that litigation in April, potentially creating another hurdle to getting the necessary approval from the China Securities Regulatory Commission for the Hong Kong IPO.

On the bottom line, Transsion is still profitable, though that metric has been a bit erratic over the last year. Its profit fell 53% to 2.61 billion yuan last year from 5.6 billion yuan in 2024, though that appears mostly related to big drops in “other income” and “other gains” unrelated to its smartphone business. Its profit rose 43% in the first quarter of this year to 700 million yuan from 490 million yuan a year earlier.

If the company succeeds with its latest Hong Kong IPO attempt, appetite for the stock could be weak due to competition from other emerging technology companies. That said, its recent rebound could attract some investor attention, and it could also draw some bargain hunters if it prices the stock significantly below its Shanghai shares, which currently trade at a price-to-earnings (P/E) ratio of 22 and price-to-sales (P/S) ratio of 0.9.

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