Gu Ming is trapped in the inner circle, and the industry is about to enter the second half?

author| Pan Yan 

Following Naixue’s tea and tea courses, Gu Ming (01364. HK) officially landed on the Hong Kong stock market and became the third share of new tea drinks.

However, Guming did not reverse the fate of tea and beverage companies that would break immediately after listing, closing down 6.44% on the first day. As of the close on February 24, Guming closed at HK$10.14, with a total market value of HK$23.9 billion, which is already slightly higher than the issue price.

“The break immediately after listing is not unrelated to the market’s overall pessimism about the new tea and beverage industry. Naixue Tea (02150. HK) and Chabaidao (02555. HK) For example, compared with the time when it was first listed, its stock price has fallen by more than 90% and 35% respectively, and its market value has evaporated by HK$27 billion and HK$5 billion respectively.

However, the market’s indifferent attitude has not discouraged new tea players from going public. Two days after Guming was listed, Mixue Ice City also successfully passed the listing hearing on the Hong Kong Stock Exchange and is about to become the fourth tea and beverage company to be listed.

In addition to the above four companies, many new China tea drinks brands such as Overlord Tea Girl, Aunt Shanghai, Tea Yan Yuese, and Tianlala have been reported to be preparing for IPOs related to Hong Kong stocks or U.S. stocks.

Behind the investigation, now that the rules of the game in the new tea and beverage industry have long been solidified, hidden dangers such as high dependence on franchisees, high operating costs, and frequent food safety problems are being exposed one by one. When the industry is highly involved, capital assistance is urgently needed.

However, listing is not the same as landing. The stability and growth of the subsequent development of listed new tea and beverage companies such as Guming still need to be verified by the market.

Performance growth depends on opening stores

The slowdown in industry growth is the first problem Guming needs to face directly after its listing.

According to data from Ai Media Consulting, the growth rate of the new tea beverage market in China has dropped to 6.4% in 2024, while the market growth rate will still be above 20% before 2021.

Reflected in Guming’s performance, from 2021 to 2023, Guming’s operating income increased from 4.383 billion yuan to 7.676 billion yuan, with a compound annual growth rate of 32.32%; attributable net profit for the same period increased from 20.139 million yuan to 1.080 billion yuan, with a compound growth rate of 634.85%.

Entering 2024, Guming’s operating income in the first three quarters increased by 15.62% year-on-year to 6.441 billion yuan, and its attributable net profit increased by 11.76% year-on-year to 1.106 billion yuan.

Coincidentally, Naixue’s tea and tea baidu will both experience a decline in net revenue in 2024. In the first half of 2024, Naixue’s tea operating income fell by 1.91% year-on-year, and net profit attributable to it fell by 758.42% year-on-year. During the same period, Chabaidao’s operating income decreased by 9.35% year-on-year, and net profit attributable to it decreased by 59.70% year-on-year.

In contrast, Mixue Ice City, which has a store size of more than 40,000, although its revenue growth in 2024 will also be affected, a decrease of 24.52 percentage points from 2023, it is still higher than its peers and maintains growth. The growth rate of net profit remains high, basically the same as the same period last year.

The stress resistance of Mixue Ice City’s business model has also become one of the main reasons why the new tea and beverage industry has generally pursued the scale of 10,000 stores in recent years.

In terms of the number of stores, Guming has ranked second in the industry after Mixue Ice City. As of the end of September 2024, the number of Guming stores has reached 9778, which is about to exceed 10,000. However, compared with Mixue Ice City, which has more than 40,000 stores around the world, there is still a big gap, and the layout is relatively concentrated.

Judging from the Guming store network, it has a single-center structure, with Zhejiang base camp as the core, and develops around it to East China, Central China, South China and other regions. However, ancient tea is still unlocked in North China, Northeast China and most northwest regions.

Even if Shanghai and Nanjing are two battlegrounds for tea brands, Guming only recently announced its official entry and started relevant franchise recruitment work.

The reason for this is mainly because Guming’s store locations are all selected around the warehouse. The prospectus shows that more than 76% of Guming’s stores are equipped with a warehouse within 150 kilometers, and more than 97% of stores are provided with cold chain distribution services of raw materials every two days, which is higher than that of peers every four days. frequency.

It is this regional encryption strategy that allows Guming to effectively reduce store operating costs. As of the end of September 2024, Guming has a total of 22 warehouses, 9 of which can deliver more than 500 stores per month. The warehousing and logistics costs of these stores are 9% lower than those covered by the remaining 13 warehouses.

Gu Ming mentioned in the prospectus that in 2023, Gu Ming franchisees ‘single-store operating profit margin will reach 20.2%, which is higher than the usual level of less than 15%, and the franchisees’ profitability has also become one of the main highlights of Gu Ming’s IPO period.

However, cold chain warehousing and self-operating vehicles may seem to be moats, but they are essentially asset heavy. When the external environment or industry prosperity weakens, investment will become a burden.

As of the end of September 2024, the book value of Guming’s property, plant and equipment increased by 10.935 to 890 million yuan year-on-year, while this figure was only 192 million yuan at the end of 2021.

When will the scale of internal examination be closed?

It should be noted that, like most existing tea brands in China, Gu Ming has been able to expand rapidly, mainly relying on franchisees to expand their territory on the front line. Among the nearly 10,000 stores in Guming, there are only 7 directly operated stores, and the rest are franchised stores.

Judging from Guming’s revenue structure, franchisees contribute most of the operating income. In the first three quarters of 2024, 80% of Guming’s operating income comes from selling fruits, tea and other raw materials, tea makers, ice makers and other equipment to franchisees, and 19.83% of its revenue comes from franchise management service fees.

In theory, under this model, as long as the plates are spread large enough, the scale growth can be maintained, and the cost pressure brought by directly operated stores can be avoided, provided that the net increase in the number of franchisees can be maintained.

According to narrow-door dining data, as of January 2025, the number of milk tea and beverage stores nationwide reached 393,200, and the number of newly opened stores reached 111,400 in the past year. However, the net increase in the number of stores during the same period was-38,800, which means More than 150,000 milk tea stores have closed in the past year.

In addition, according to the “Blue Book on the Development of Chain New Tea and Beverage Stores in 2024”, only 8% of tea brand stores will have a net increase of more than 500 to achieve rapid expansion, and 58% of brands will be shrinking or stagnant.

Taking Guming as an example, in the first three quarters of 2024, the net growth of Guming stores was 777. Although it is better than most peers, the expansion rate has slowed down significantly compared with previous years. From 2021 to 2023, the net growth of Guming stores will be 1603, 975, and 2332 respectively. From 2021 to the third quarter of 2024, Guming’s franchisee turnover rate climbed from 6.2% to 11.7%.

Faced with the problem of losing franchisees, new tea players collectively lowered the joining threshold.

Since 2024, many new tea brands, including Guming, Naixue Tea, Chabaidao, Shuyi Shaoxiao, Xicha, Mixue Ice City, etc., have proposed incentive funds, zero franchise fees, etc. to attract franchisees to settle in. A number of preferential policies.

However, the new tea drinking track has experienced a period of rapid growth. Faced with a relatively saturated market space, does it still make sense to race around the ground?

The backlash from scale surges has already appeared. Against the background of excessive homogenization, oversupply in the number of stores, and a general decline in operating efficiency, the profit margin of new tea and beverage stores has been further compressed. Newly opened stores are not as profitable as old stores, and the GMV of single stores shows a downward trend.

In the first three quarters of 2024, the average daily GMV of a single store in Guming dropped by 4.38% year-on-year to 6500 yuan, of which the average daily GMV of new stores dropped by as much as 10.34% to 5200 yuan.

In addition, Guming, which lives in the south, is facing the same problem as Mixue Ice City. The overly dense store store model may lead to the diversion of customer bases and cause competition among franchisees. Taking Guming Base Camp in Zhejiang as an example, more than 2000 stores have been opened, but the average daily GMV of stores in Zhejiang has dropped by 0.8% year-on-year.

However, there are also new tea players who are fighting back against this business model.

At the beginning of 2025, Xi Tea, which has only been open to the franchise model for two years, canceled the franchise subsidy and suspended accepting franchise applications. Xicha announced in an internal letter that in 2025, it will continue to insist on not making low-price in-sales and reject in-sales in stores.

This may become a new trend, that is, as the new tea and beverage market enters the second half, the industry will shift from rushing for thousands of stores to value competition, and from traffic harvesting to user stickiness.

Huge dividends on the eve of listing

In addition, Gu Ming’s debt situation is also eye-catching.

From 2021 to 2023, Guming’s asset-liability ratios are 159.01%, 126.94%, and 88.06%, respectively. According to the latest data, Gu Ming’s debt pressure has eased. In the first three quarters of 2024, Guming’s asset-liability ratio decreased by 22.41 percentage points to 72.80%, but it is still at a high level. However, judging from the balance sheet details, a large part of these liabilities are related to a gambling agreement before Guming’s IPO.

In 2020, Guming introduced nearly 700 million yuan in investments including Meituan, Sequoia, and Kotu Capital through two rounds of financing. The requirement is to complete the IPO before the end of September 2027. Now that Guming has been successfully listed, this part of its liabilities will be cleared.

As of the end of September 2024, Guming’s total liabilities reached 4.623 billion yuan, of which financial liabilities measured at fair value and their changes included in current profit and loss reached 3.167 billion yuan. If this part is excluded, Guming’s current asset-liability ratio will drop to 22.93%.

However, since 2020, Guming has no external financing for blood transfusion. As of November 30, 2024, Gu Ming’s cash and bank balances were 1.853 billion yuan. However, it should be noted that Gu Ming implemented a dividend on the eve of its listing.

In January 2025, Gu Ming declared a dividend of 1.74 billion yuan to existing shareholders who appeared on the company’s register of shareholders before December 31, 2024.

The vast majority of this money goes into the pockets of company founders and executives.

The prospectus shows that before the issuance and listing, Wang Yun ‘an, Qi Xia, Nguyen Xiudi, Pan Pingping and others entered into a concerted action agreement. As of the latest practical date, the parties to the concerted action arrangement controlled a total of 1.728 billion shares, accounting for approximately 79.5% of Gu Ming’s total shareholding.

Among them, Wang Yun ‘an, Chairman and CEO of Guming’s Board of Directors, holds 43.21%, President Qi Xia holds 19.78%, Executive Director Nguyen Xiudi holds 13.74%, and Pan Pingping holds 2.76%. In addition, Meituan Dragon Ball holds 8%, and MaxMighty Limited, a subsidiary of Sequoia Capital, holds 4%.

Based on the pre-sale shareholding, the company’s founder Wang Yun ‘an will enjoy a dividend of 752 million yuan for this dividend of 1.74 billion yuan, President Qi Xia can get 344 million yuan, Nguyen Xiudi can get 239 million yuan, Longzhu, a subsidiary of Meituan, can get 139 million yuan, and Sequoia Capital can get 70 million yuan.

In addition, according to the plan, Guming will also distribute a special dividend of 2 billion yuan to new and old shareholders by the end of 2025. nbsp;