Nayuki, a Chinese bubble tea chain operator, will start trading on the mainboard on Wednesday after receiving a warm response from investors.
The Shenzhen-based company, which is well-known for fruit teas and baked goods, could raise about HK$5.09 billion after pricing its Hong Kong initial public offering at HK$19.8, the higher end of the indicative range, Bloomberg reported. Nayuki has closed institutional books a day before the scheduled date. Its retail portion was oversubscribed by about 430 times, freezing nearly HK$220 billion in cash, local media reported.
Shares of rival B&S International (1705) soared by nearly 130 percent after Nayuki submitted the application in February. B&S, the parent of bubble tea chain TenRen Tea was oversubscribed by 2,600 times when it launched Hong Kong IPO three years ago.
Founded by couple, Peng Xin and Zhao Lin, six years ago, Nayuki ranked second in Chinese premium teahouse chains with a market share of 18.9 percent last year, according to a China Insights Industry Consultancy report. With a market share of 27.7 percent, the largest domestic player Heytea is reportedly seeking a Hong Kong IPO to raise US$400 million (HK$3.1 billion) to US$500 million at the end of this year.
Nayuki mainly targets young white-collar workers in first-tier cities. It is the most expensive brand in mainland China, whose average sales reached 43 yuan (HK$51.56) per order last year compared with an average of 35 yuan of peers.
The total market size of freshly-made tea drinks in terms of retail consumption value in China 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. But some investors have started to worry about competition as more brands are launching similar products.
After years of rapid expansion, Nayuki operates 562 teahouses as of June 11, including one in Hong Kong and one in Japan. To further gain market share, Nayuki will use 70 percent of the IPO net proceeds to continue to expand the teahouse network, with a plan to open about 300-350 stores this year, almost double the number of 2020, according to Zhao, who is the chief executive. It will open 350 teahouses in 2022, with a similar or faster pace in 2023, mainly in tier-one cities, according to the prospectus.
However, the aggressive expansion and the coronavirus epidemic have dampened its revenue growth and profitability.
Nayuki's revenue 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 the revenue growth rate slowed to 22.2 percent and net loss widened by more than four times to 203.3 million yuan. The adjusted net profit margin was only 0.5 percent last year.
The average daily sales per teahouse and same-store sales also fell sharply, as customer visits were dispersed after opening more stores. The same-store profit margin dropped to 13.5 percent last year, from 21 percent a year ago.
Nayuki said it plans to improve profitability by launching a new premium brand. It plans to open 70 percent of stores under 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 automation 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 of the market.
