Just now, ChaBaida, which sells 1 billion cups of tea a year, had its IPO.

"The Second Largest Tea Beverage" Has Finally Arrived

First of all, congratulations to all the milk tea consumers for once again drinking a cup of milk tea into the IPO.

On April 23, 2024, Chabaida successfully listed on the Hong Kong Stock Exchange. Chabaida's offering price was HK$17.5 per share, with a total of 148 million shares issued, raising a total of HK$25.86 billion, making it the largest IPO in the Hong Kong stock market so far this year. As of the time of writing, the stock price was HK$12.5 per share, with a market value of HK$18.47 billion.

In the past year, many tea beverage brands have announced plans for IPO. In 2024 alone, Shanghai Auntie, Guming, and Migu Xue Bingcheng have submitted their prospectuses to the Hong Kong Stock Exchange, ushering in a wave of IPOs in the new tea beverage market. However, submitting a prospectus is just the first step towards entering the capital market. This time, Chabaida has finally opened this door.

Founded by a couple born in the 1980s, Chabaida has nearly 8,000 stores

Friends who love drinking milk tea should be familiar with the name Chabaida, which sells 1 billion cups of tea a year, with many stores even open 24 hours a day.

The development history of Chabaida is also a romantic entrepreneurial story. The founder, Wang Xiaokun, is said to come from a family of tea merchants in Chengdu. After graduating from college, he became a tea artist, and his wife, Liu Weihong, also has a deep understanding of tea beverages. The two 80s generation entrepreneurs saw the business opportunity in freshly made tea beverages, so in 2008, they opened the first Chabaida store near the Second Middle School in Wenjiang, Chengdu, targeting students as their main consumer group.

At that time, Chabaida was undoubtedly a true "mom-and-pop store." Now, Chabaida has stores all over the country, not far from reaching the goal of "10,000 stores." With the completion of the IPO today, it has also claimed the title of "the second largest tea beverage" after Nai Xue's Tea, the "first tea beverage" in the fierce competition among its peers.

In the new tea beverage market, there is no shortage of milk tea brands. Even though the predecessors have established their own reputation, there are still new players who are not afraid to enter this competitive market. However, despite the abundance of brands, Chabaida is truly the third largest player in the industry.

Chabaida, the third largest player in the industry, sold 1.016 billion cups of milk tea in 2023, with a total retail sales of 16.9 billion yuan. According to a report by Frost & Sullivan, based on the retail sales in 2023, Chabaida ranks third in the Chinese freshly made tea beverage market, with a market share of 6.8%.

Guming, the second largest player, has a market share of 7.8%, while the industry leader, Migu Xue Bingcheng, holds a market share of 17.8%. The top five market participants (Migu Xue Bingcheng, Guming, Chabaida, Shanghai Auntie at 4.2%, and Shuyi Shaoxiancao at 3.4%) collectively hold 40.0% of the market share. Looking at it this way, even with the fierce competition in the new tea beverage market, the remaining 60% market share is enough to attract new ambitious players.

Chabaida's ability to secure its position as the third largest player in the industry is also attributed to its strong ability to open stores. According to the prospectus, as of February 18, 2024, Chabaida has a total of 7,927 stores in China, approaching 8,000 stores. Among them, 99% are franchise stores, with only 6 directly operated stores. Therefore, revenue from franchisees is also the main source of income for Chabaida.

How fast is Chabaida's franchise expansion? In 2019, Chabaida had nearly 600 franchise stores, and in 2020, it exceeded 2,200 stores. In 2021, it opened 2,835 stores, an increase of more than 70 times compared to 2016 when it had only 100 stores. According to the prospectus, Chabaida takes away a whopping 95% of the total revenue from franchisees, as well as 4.1% of the revenue from franchise fees and royalties.

In terms of operating segments, the revenue of Chabaida's various segments is growing, but the revenue from the sale of goods and equipment business has increased the most, accounting for 90.5% in 2023, up from 83.6% in 2021.

Looking at the distribution of stores in cities, Chabaida still has the largest proportion of stores in new first-tier cities, accounting for 26.9%. The number of stores in fourth-tier and below cities has significantly increased, from 19.7% at the end of 2022 to 22.2%.

In many industries, the more franchise stores there are, the higher the closure rate. However, Chabaida is an exception. Despite continuously expanding its stores, its closure rate is not high. According to the Frost & Sullivan report, the closure rates of Chabaida in 2021, 2022, and 2023 were 0.2%, 1.1%, and 2.3%, respectively, far below the industry average.

This indicates that Chabaida has established its own moat, stabilizing consumers' minds in the experience, which is not easy in the fiercely competitive new tea beverage market.

The growth of stores has led to an increase in revenue. According to the prospectus, from 2021 to 2023, Chabaida achieved revenues of 3.645 billion yuan, 4.233 billion yuan, and 5.706 billion yuan, respectively. During the same period, the net profits were 756 million yuan, 954 million yuan, and 1.139 billion yuan, respectively, with a gross profit margin of 35.7%, 34.4%, and 34.4%, respectively.

In terms of revenue composition, from 2021 to 2023, Chabaida's online retail sales increased from 6.114 billion yuan to 9.9815 billion yuan, with online sales accounting for 59.03%, nearly 60% of the revenue coming from online sales. The "Chabaida Membership Program" has accumulated over 66 million registered members.

Chabaida's closure rate is below the industry average, and its net profit margin is also at the top level in the industry, consistently exceeding 20% over the past three years, with 7.8 billion yuan, 9.6 billion yuan, and 11.5 billion yuan, respectively, representing a compound annual growth rate of 21.6%.

First-round public financing of 970 million yuan, valuation close to 18 billion yuan

The title of "unicorn with a market value of over 10 billion yuan" for Chabaida came quite unexpectedly, as it was not until June 2023 that it started its first round of financing, which was also its Pre-IPO financing. Two months later, Chabaida submitted its prospectus to the Hong Kong Stock Exchange.

However, Chabaida has always been a hot commodity in the industry. It was rumored that in 2021, it was even reported that it encountered a frenzy of investors vying for shares in a new round of financing.

In May 2023, Lanxin Asia, Zhengxin Valley Capital, Caogen Zhiben, and Tomato Capital jointly invested 950 million yuan to become shareholders of Tea Baodao. The following month, the company secured an additional 20 million yuan in financing from Zhongjin Capital, a subsidiary of Zhongjin Company. At this time, Tea Baodao's valuation was approximately 17.6 billion yuan.

This marks the first public financing for Tea Baodao in its 15-year history and also the first large-scale financing in the tea beverage industry in 2023.

The motivation behind this round of financing can be traced in the prospectus. As of the end of March 2023, Tea Baodao's cash and cash equivalents were only 32 million yuan, making financing an urgent need. Thanks to the influx of funds from this round, Tea Baodao's bank balance and cash quickly rose to 1.17 billion yuan by January 31, 2024, and its net liquid assets increased from 320 million yuan in 2021 to 1.68 billion yuan by January 31, 2024.

In the prospectus, Tea Baodao stated that they have sufficient funds to meet the demand for the next 12 months.

Before going public, Wang Xiaokun and Liu Weihong collectively held approximately 81.21% of the shares, while Lanxin Asia held about 4.56%, Zhengxin Valley Capital held about 0.4%, Caogen Zhiben held about 0.28%, Tomato Capital held about 0.17%, and Zhongjin Capital held about 0.11%.

Based on the pre-IPO valuation of 17.6 billion yuan, the combined wealth of Wang Xiaokun and Liu Weihong exceeded 14 billion yuan, placing them on the billionaire list.

The Rise of New Tea Beverages

The surge of new tea beverages is evident to everyone. Brands that once targeted high-end prices have all entered the market with prices below 20 yuan, indicating that "survival is already a difficult task."

In addition, many are also gearing up for IPOs.

Many well-known new tea beverage companies have announced plans to go public around the same time. As early as July 2023, there were reports that companies such as Mixue Bingcheng, Tea Baodao, Shanghai Auntie, Bawang Chaji, Xinshi Qi, and Guming were preparing to go public. Like most companies, Tea Baodao initially declined to comment, but the following month, it chose to go public in Hong Kong.

However, the only successful IPO of a new tea beverage company in 2021 was Naixue's Tea. Mixue Bingcheng had applied for an A-share IPO in 2022, but there have been no new developments in nearly a year, leading to reports that the plan has been "put on hold."

Many have expressed their intention to go public, but only a few have succeeded. There have been private complaints from investors who are eager for the new tea beverage companies they have invested in to go public as soon as possible, as their limited partners are urging them to exit. This investor's investment is in a brand with an unusually high valuation.

Many investors no longer expect high returns from the new tea beverage companies they have invested in, but hope to exit through an IPO, saying, "Every little bit helps," as the aforementioned investor put it.

Nevertheless, the fact that a new tea beverage company can finally go public is good news. The second, third, and fourth new tea beverage companies may not be far behind.