Guming IPO returns to front burner with new listing application

The maker of mid-priced fresh fruit teas could raise $300 million in its year-end Hong Kong listing, as China ends a ban on new IPOs by the group
Key Takeaways:
- Guming has relaunched its Hong Kong IPO, reporting double-digit revenue and profit growth in the first nine months of this year
- The company’s growth came from new store openings, as its gross margin fell slightly due to intense competition in China’s premium tea drink market
By Doug Young
Just a week after we predicted that China was lifting its ban on new bubble tea IPOs, it’s official. That’s the key takeaway from Guming Holdings Ltd.’s filing of an updated listing document with the Hong Kong Stock Exchange on Monday, just a week after the Chinese securities regulator signaled the listing could proceed after a nearly yearlong delay.
The latest filing from Guming, which uses the English name “Good me” on its thousands of tea shops around China, contains a year of fresh financial data from the company since its last filing in January. Much has changed since then, including intensifying competition as Guming and its rivals continue to open new stores at a rapid pace, even as the market shows growing signs of oversaturation.
At the same time, Chinese consumers are becoming increasingly cautious as the nation’s economy slows after years of breakneck growth. That’s hitting high-end bubble tea makers like Heytea and Nayuki (2150.HK) the most, though mid-range companies like Guming and rival Chabaidao (2555.HK) are also feeling the pinch.
Truth be told, Guming’s updated financial data is relatively reassuring, all things considered. At the broadest level, its data for the first nine months of this year shows that same-store sales are dropping due to competition and lower spending by consumers. But Guming was also able to report revenue growth for the period – something that defied listed rivals Nayuki and Chabaidao in the first half of this year.
That said, we’ll delve more deeply into the latest tea leaves for China’s bubble tea market coming from Guming’s new listing application. First, we should point out that while we often refer to this group as “bubble tea” chains, Guming’s mainstay is actually fresh-made tea drinks containing fruit and milk. It calls itself a mid-market chain, selling its products mostly in the 10 yuan to 20 yuan range, equal to about $1.40 to $2.80. That contrasts with more budget chains like Mixue, the nation’s largest operator, that make most of their drinks using powders and pre-packaged ingredients.
The segment where Guming operates had a whopping 660,000 stores across China at the end of last year, with Guming controlling about 4.8% of that market, according to its latest listing document.
The company and its peers have been opening stores at lightning pace over the last three years, mostly using a franchising model. But that rate is also slowing as the market becomes saturated and franchisees have more difficulty making money. Guming exemplifies that trend, boosting its store count to 9,778 by the end of September, up 9% from its 9,001 stores at the end of last year. While that growth figure isn’t year-on-year, it probably translates to a year-on-year increase of about 12%, which would represent a marked slowdown from the 35% growth in its store count between the end of 2022 and 2023.
Slumping same-store sales
Guming’s revenue grew to 6.44 billion yuan ($885 million) in the first nine months of this year, up 15.6% year-on-year, which is roughly in line with the growth of its store network. That shows that most of the revenue growth came from new store openings rather than improving performance of individual stores. That reality is reflected in a 4.3% year-on-year decline in the company’s same-store gross merchandise value (GMV) in the first nine months of the year.
While that decline looks worrisome, it’s actually much better than what Nayuki and Chabaidao reported. Chabaidao’s revenue slumped 10% in the first half of this year compared with the same period of 2023, even as it boosted its store by 20% over that period. Nayuki’s revenue also fell 1.9%, as it slipped into the red.
Guming was also able to boost its profit in the first nine months of the year by about 12% to 1.12 billion yuan from 1 billion yuan a year earlier, though its gross margin dropped slightly to 30.5% from 31% over that period. Still, that’s far better than Chabaidao, whose profit tumbled by about half year-on-year to 239 million yuan in the first half of the year. And as we’ve already noted, Nayuki fell into the red with a loss of about 65 million in the first half of the year, reversing a 440 million yuan profit a year earlier.
Guming is trying to convince investors that it may be more immune to China’s economic slowdown due to its focus on China’s smaller markets, which are suffering less than major cities like Beijing and Shanghai. The company points out about 80% of its stores are located in second-tier and smaller cities, and 38% are in the smallest cities, called townships, or zhen and xiang in Chinese.
Guming also appears to be taking a more cautious approach to expansion, as reflected by its much slower pace of expansion than Chabaidao. Such an approach looks prudent in this kind of overheated market that is sorely in need of consolidation. Indeed, Guming notes that such consolidation has already begun, pointing out market share held by the top five brands in the freshly made tea segment rose to 46.8% by the end of last year from 38.5% three years earlier.
We’ll close with a look at how Guming might be valued. The company should be able to match or even slightly exceed Chabaidao’s price-to-earnings (P/E) ratio of 19, which would give it a market value of 22.4 billion yuan if we assume a ratio of 20.
Previous reports indicated Guming was aiming to raise about $300 million in its listing, which would be roughly the same as the $330 million raised by Chabaidao. While Chabaidao’s shares initially plunged, losing around three-quarters of their value in the months after their listing, they’ve rebounded a bit lately and are now down by a milder 38% from their IPO price.
The bottom line seems to be that sentiment is improving towards the bubble tea sector. That could help Guming, which also appears to be one of the better-managed chains among its listed peers. That could help it to emerge as a consolidator in the future as such better-run chains get set to mop up smaller struggling brands.
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