NEWS WRAP: Nayuki COO leaves amid growing challenge from larger peers

The bubble tea chain announced the senior executive departure days after it was ousted from the benchmark Hang Seng Composite Index

By Teri Yu

Nayuki Holdings Ltd. (2150.HK) on Wednesday announced the resignation of veteran employee and COO Deng Bin, as the company struggles in an oversaturated Chinese bubble tea market. The company said Deng, who joined Nayuki in 2016, was leaving for personal reasons and did not announce a successor.

The announcement came just days after Nayuki and several other traditional consumer and pharmaceutical stocks were removed from Hong Kong’s benchmark Hang Seng Composite Index (HSCI) in a regular update. Despite those negative developments, Nayuki’s shares were up almost 19% midway through the Wednesday trading day.

At the midday break, shares of larger rival Chaibaidao (2555.HK) were also up over 5% at HK$10.04, while newly listed Guming (1364.HK) was up less than 1% at HK$11.06.

The bubble tea rally could owe partly to a strong reception for the upcoming IPO by Mixue, China’s largest bubble tea chain. The retail tranche of Mixue’s IPO was reportedly oversubscribed by at least 2,500 times, setting a record for a Hong Kong IPO. Mixue plans to issue about 17 million shares, raising about HK$3.45 billion ($444 million) from the listing.  

Nayuki was the first Chinese bubble tea chain to float shares in Hong Kong with its 2021 listing, and once looked like a leading player in the sector. But the company has been overtaken in recent years by more aggressive rivals expanding rapidly using a franchising model. By comparison, Nayuki mostly operates its own stores.

The challenge from rivals like Mixue and Guming is showing up in Nayuki’s weakening performance. The company’s revenue fell 1.9% year-on-year to 2.54 billion yuan ($350 million) in the first half of last year, while it incurred a net loss of 435 million yuan during the period, reversing a 66 million yuan profit a year earlier.

Nayuki is also rapidly falling behind its rivals in terms of store count due to the slower pace of opening self-operated stores. As of last September, its network included 1,531 self-operated stores and 353 operated by franchisees.

By comparison, the other top tea chains like Mixue, Guming, Chaibaidao and Auntea Jenny are using a franchising model to expand more rapidly. Mixue boosted over 45,000 stores as of last September, making it the largest bubble tea chain in China in terms of both stores count and the number of cups sold. Over 99% of Mixue’s stores are franchised. 

Similarly, Guming operated a network of over 9,000 stores at the end of 2023, up 35% from a year earlier. Like Mixue, the company only directly managed seven self-operated stores, and 99% of its sales came from its franchised stores.

Even after the Wednesday rally, Nayuki’s stock is still down more than 50% over the last year amid concerns about its prospects in China’s overheated bubble tea market. Its latest price of about HK$1.50 is about 90% below its IPO price of HK$17.50, and could face difficulty rising much higher due to the many other rival stocks now available to investors.

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