Premium tea chain aiming for high end

money-glitz | Avery Chen 1 Mar 2021

Nayuki, a Chinese premium tea chain operator, filed an application for a Hong Kong listing on Lunar New Year's eve, seeking to raise up to HK$3.9 billion.

The Shenzhen-based company, which is well-known for fruit teas and baked goods, is planning to sell shares in the second quarter, Bloomberg reported. Founded by couple Peng Xin and Zhao Lin six years ago, Nayuki ranked second in Chinese premium teahouse chains with a market share of 17.7 percent, according to a China Insights Industry Consultancy report.

Shares of rival B&S International (1705) soared nearly 130 percent after Nayuki submitting the application. B&S, the parent of bubble tea chain TenRen Tea was oversubscribed by 2,600 times when it launched an initial public offering three years ago.

Nayuki was valued at nearly US$2 billion (HK$15.6 billion) at the latest funding round in December, attracting investors like billionaire Jack Ma Yun's Yunfeng Capital.

That is compared with Heytea, the biggest bubble tea chain in China with a 25.5 percent market share, whose valuation reached US$2.5 billion after four rounds of financing. Tencent (0700), Meituan (3690) and Hillhouse Capital are among the investors. Heytea is reportedly seeking a Hong Kong IPO to raise around US$400 million to US$500 million at the end of this year.

Nayuki mainly targets young white-collar workers in first-tier cities, using fresh fruit, high-quality tea leaves, fresh milk, and low-calorie sweeteners to replace syrup, tea powder, and creamer, which is commonly used by most bubble tea chains before 2015. That makes it the most expensive brand in mainland China, whose average sales reached 43.3 yuan (HK$51.97) per order as of September as compared to an average of 35 yuan in the premium tea drink market.

Thanks to the consumption upgrades in mainland China, the total market size of freshly-made tea drinks in terms of retail consumption value surged by nearly 60 percent to 113.6 billion yuan in 2020 from 2015, and it is expected to reach 340 billion yuan in 2025, the CIC report said.

After years of rapid expansion, Nayuki operates 507 teahouses as of February 5, including one in Hong Kong and one in Japan, up from only 44 at the end of 2018. It intends to use the net proceeds from the IPO to continue to expand the teahouse network, digitalize operations, and strengthen supply chain capabilities.

Nayuki plans to open about 300 stores in 2021 and 350 teahouses in 2022, with a similar or faster pace in 2023, primarily in tier-one cities.

However, the aggressive expansion and the coronavirus epidemic have dampened its revenue growth and profitability.

Nayuki's revenues surged by 1.3 times to 2.5 billion yuan in 2019, with net loss shrinking by 42 percent to 39.68 million yuan. But in the first three-quarters last year, revenue growth rate slowed to 20.85 percent and net loss widened by more than six times to 27.51 million yuan. The adjusted net profit margin was only 0.2 percent during the period, down from 1 percent a year ago.

The average daily sales per teahouse and same-store sales also fell sharply, as customer visits were dispersed because of more stores. The same-store profit margin dropped to 12.6 percent in the nine months ended September last year, from 21.8 percent a year ago.

After the coronavirus disease was contained in mainland China, the same-store profit margin for Nayuki rebounded to 18.1 percent in the third quarter last year. And the company plans to seize more market share at the high-end market to capture the post-pandemic recovery. It plans to open 70 percent of stores under the new premium brand Nayuki PRO in shopping malls, high-end office buildings, and high-density residential neighborhoods.

In Nayuki PRO, the company removed the on-site bakery section to reduce store sizes, using automated devices to cut labor costs, adding more coffee products and easy-to-grab snacks targeting office workers. The strategy is different from Heytea's, which launched takeaway store Xixiaocha in April last year, providing drinks and foods which cost only 6 to 15 yuan, aiming to tap into the lower-end market.

Earlier this month, an affiliated company of Nayuki was included in the list of enterprises with abnormal operations by Beijing's market regulator. The company said the subsidiary submitted a 2019 annual financial report with clerical errors and will soon be removed from the list after amending the report.



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