On April 23, the Hong Kong stock market welcomed the listing of yet another new Chinese tea brand, Chabaidao (02555).

However, judging from the market reaction on the first day of the company's listing, the company's stock price performance did not seem ideal as expected. By the close of trading on the 23rd, Chabaidao's stock price closed at HK$12.8, a decrease of about 26.86%.

Behind this, on the one hand, it is related to the weak performance of the Hong Kong stock market and emerging industries under the influence of pessimistic monetary policy expectations of the Federal Reserve, compounded by heightened global risk aversion; on the other hand, there are also industry insiders that some investors feel that the company's pricing is too high, and the current Chabaidao undermarket transaction has shown signs of decline, which has had a certain impact on investor confidence, and may also cause the company to face selling pressure on the first day of listing.

In the current market environment, does the stock price of Chabaidao reflect its real value for this emerging brand of ready-to-drink tea?

Strong fundamentals, a “meritorious student” in the modern tea industry

For listed companies, the factors that determine the company's stock price include multiple factors such as profitability, growth prospects, macro environment, industry prospects, and investor sentiment.

Among them, the macro environment, industry prospects, and investor sentiment mostly show cyclical changes. What really reflects the long-term value of an enterprise still needs to return to the roots of fundamentals, that is, the company's own financial situation and growth performance itself.

Back to basics, Baidao, the first cup of tea, was born in Chengdu in 2008. The company opened up the market with popular products such as poplar nectar and signature taro milk tea. It can be said that it is a listed brand drunk by young people.

Behind this, the company has created a rich product matrix composed of classic teas, seasonal teas, and regional teas by using high-quality tea and seasonal fresh fruit. In recent years, new products have been introduced frequently, and popular products such as “jasmine milk green”, “poplar nectar”, “dark black”, “green jasmine”, and “yellow skin with lime” are constantly emerging. In 2023, the company's products sold a total of 1,016 million cups.

Reflected in revenue, the Zhitong Finance App learned that in terms of retail sales in 2023, Chabaidao's share of the current tea shop market in China reached 6.8%, making it the third largest tea brand in China. At the same time, before going public, Chabaidao also proved its hematopoietic ability.

Judging from the data performance of the four companies currently listed or planning to go public that have disclosed financial statements, from 2021 to 2023, Chabaidao's revenue was 3.64 billion yuan, 4.23 billion yuan, and 5.70 billion yuan respectively, with a compound annual growth rate of 25.1%, making it the company with the fastest average revenue growth rate among several companies in the same industry.

In terms of profitability, in 2023, Chabaidao achieved net profit of 1.15 billion yuan. It is already one of the few Hong Kong stock IPOs in recent years to exceed 1 billion yuan, and its net profit scale also ranks first among companies with a comparable level of store size.

At the same time, Chabaidao's net profit margin performance also remained at the highest level in the industry. The average net profit margin in the past three years reached 21.47%, far higher than the industry average of 13.63%.

Judging from the financial growth performance, Chabaidao has successfully established a foothold in the fiercely competitive tea industry and achieved solid, steady, industry-leading performance growth. There is no doubt that it is a proper “outstanding performer” in the industry and even in the IPOs listed on Hong Kong stocks.

The current stock price has reached an undervalued level

Judging from the business model, Chabaidao has adopted an asset-light development model as a whole.

On the one hand, the company is actively expanding online channels, and has achieved some results online so far. An intuitive example is that Chabaidao has established an absolute advantage on the Douyin platform, ranking first in various industries such as “National Delivery Group Buying List”, “GMV for live streaming in the tea and drink category”, and “special brand conversion rate” with Douyin Live Streaming.

On March 10, 2023, the GMV sales of Douyin Live exceeded 100 million yuan in a single day, and the number of fans increased by about 230,000 in a single day, setting a new GMV record for the Douyin Life Service brand's live broadcast.

At the same time, the number of members of Chabaidao is growing rapidly, and the number of registered members has now exceeded 100 million. The Zhitong Finance App learned that in the fourth quarter of 2023, the number of active members reached 20.4 million, and the member repurchase rate reached 35%, which is higher than the industry average.

In terms of offline channels, the company's offline store construction mainly focuses on franchising, divesting heavy assets, and focusing more on the supply chain and brand output. In terms of business model, Chabaidao also focuses on the small store model and takeout business, which has a cost advantage. It can not only meet consumers' quality-price ratio needs, but also better guarantee the growth of business performance. From 2021 to 2023, Chabaidao also achieved a closing rate far below the industry average.

Currently, Chabaidao is also actively exploring its second growth curve. In addition to strengthening the supply chain, in January of this year, Cha Baidao opened its first overseas store in Seoul, South Korea, and will open its third store in Korea in April. At the same time, the company also opened its first coffee shop directly managed by the “Coffee Grey” brand in Chengdu, which mainly sells coffee, bagels, burgers and other baked goods, and plans to open 15 coffee shops over the next three years.

Looking at the main business growth space, according to Frost & Sullivan's forecast, the domestic tea shop market will grow at a compound annual growth rate of 16.8% in 2023-2028. Among them, new first-tier cities, third-tier cities, fourth-tier cities and below are expected to grow further at compound annual growth rates of 15.4%, 18.7%, and 17.8%, respectively.

Compared with Lucking's similar profit performance in 2023 and current valuation, in 2023, Lucky achieved net profit of 2,848 billion yuan, with a net profit margin of 11.4%; in the same year, Chabaidao's net profit was 1.151 billion yuan, a scale of about 40.41% of Lucky's, and a net profit margin of 20.2%.

Judging from the latest market capitalization, Lucky's total market value is 6.358 billion US dollars, and the market capitalization to net profit ratio is 15.85. Chabaidao's latest total market value is HK$17.141 billion. The ratio between market value and net profit is 13.78, which is already underestimated.

Regarding the current listing of Cha Baidao, some industry insiders said that although judging from the market environment, Hong Kong stocks are currently not in a good issuance window, under industry competition, Chabaidao can embrace the capital market as soon as possible and rely on the listing platform for financing and mergers and acquisitions, which will be more beneficial for enterprises to consolidate their market competitiveness. According to conservative estimates of the company's current growth rate, Chabaidao's net profit is expected to reach 1.53 billion yuan in 2024. From a medium- to long-term perspective, the company's future market performance can still be expected.