What Does Nayuki's Hong Kong IPO Mean for the China Coffee Market?

Nayuki, a Chinese freshly made tea brand built on fruit tea and soft European bread, submitted its prospectus to the Hong Kong Stock Exchange on Chinese New Year's Eve. Its valuation is near 13 billion RMB, yet its 2020 net profit margin was only 0.2%, with net profit of 4.484 million RMB.

The brand has completed five financing rounds and reported about 29.2 million registered members, with member orders making up roughly 49.4% of the total in the first nine months of 2020. Expansion costs are the main drag on profitability. The filing positions Nayuki against Starbucks as it tests how far the China coffee market can absorb rapid store growth.

On the evening of Chinese New Year's Eve, Nayuki submitted its prospectus to the Hong Kong Stock Exchange. This high-end freshly made tea beverage brand, centered on "fruit tea + soft European bread," has completed five rounds of financing and is now valued at nearly 13 billion RMB. However, behind the glossy listing process, its 2020 net profit margin was only 0.2%, with net profit of just 4.484 million RMB. The cost pressures and profitability shortcomings brought by rapid expansion have drawn attention. Can Nayuki leverage its listing to become a dark horse in the new-style tea beverage track? This article will sort through the angles of valuation, membership system, store expansion, financial data, and industry views one by one.

On the night of Chinese New Year's Eve, Nayuki rushed to submit its prospectus to the Hong Kong Stock Exchange just before the Spring Festival, taking a key step toward a Hong Kong listing.

When this new-style tea beverage brand announced its listing plan, its valuation had already reached 12.9 billion RMB. The prospectus shows that Nayuki positions itself as a high-end freshly made tea beverage chain brand in China, featuring a product combination of "fruit tea + soft European bread," but its ambitions go far beyond being a profitable company: it hopes to benchmark itself against Starbucks and build a globally influential brand.

To date, Nayuki has completed five rounds of financing. After completing its Series C financing earlier this year, its valuation approached 2 billion USD, equivalent to about 13 billion RMB.

According to a report by Capital State, as of the latest practicable date, Nayuki's membership system had about 29.2 million registered members. In the first nine months of 2020, about 49.4% of Nayuki's total orders came from member contributions. From this perspective, its financial performance is notable.

In 2019, Nayuki's membership system was officially launched. In May of the same year, the brand also partnered with Tencent to launch a group-ordering feature. It is worth mentioning that on October 9 last year, Nayuki released the "Nayuki 2020 National Day and Mid-Autumn Festival Holiday Big Data Report," which showed that during the 8-day holiday, Nayuki sold more than 3.4 million cups of tea drinks and also sold more than 1.6 million soft European breads. The data also revealed that during that period the number of members grew by nearly 1 million, with cumulative members approaching 27 million.

In terms of store layout, as of September 30, 2020, Nayuki had opened more than 420 tea beverage stores in 61 cities in mainland China. Earlier, in the early stage of launching its "National City Expansion Plan," Nayuki invested tens of millions of RMB to build its own supply chain. According to reports, its first central factory, with an area of more than 10,000 square meters, has been completed, a move not commonly seen among peers.

However, although Nayuki has been active in the market and expanding rapidly in recent years, its profitability is not outstanding.

Multiple media reports pointed out that, taking 2020 as an example, Nayuki's full-year net profit was only 4.484 million RMB, with an overall net profit margin as low as 0.2%, a rather thin level of profitability.

The main reason for the thin profit is that operating costs at the store level have remained persistently high, with the largest shares including raw material costs, employee compensation, rent and related store operating expenses, and depreciation of fixed assets.

According to the listing documents, in the first three quarters of 2020, Nayuki's revenue reached 2.11 billion RMB, but it recorded a loss of 27.51 million RMB over the same period. Fortunately, in the third quarter of 2020, Nayuki's same-store sales had recovered to about 90.9% of the same period in 2019. For 2021, Nayuki said it expects to achieve positive same-store sales growth.

Zhu Danpeng, a Chinese food industry analyst, believes that behind Nayuki's long-term losses is a hidden danger brought by its rapid expansion.

"Making money by listing" seems to have become the ultimate goal of many new tea beverage companies, but it is worth pondering whether "listing" can truly become an effective path for brands to expand the market.

At present, Nayuki is still continuing to develop and grow. As it is about to enter the capital market, can it become a dark horse among representative new-style tea beverage brands?

*Images and some data sources: Internet

The above content is compiled by CoffeeHunters, a coffee news website.