Blue Lotus China New Economy Research, Blue Lotus Research Institute

Eric Wen

Blue Lotus China New Economy Research

China growth and global non-US Internet equities

Blue Lotus Research Institute

Blue Lotus Research is a Hong Kong Type 4 Licensed investment advisory firm focusing on Chinese growth equities and global non-US Internet equities

Equity Bottom-Up

<ul>
<li>We cut Luckin Coffee’s 1Q24 revenue estimate by 3% to RMB7.9bn with 79% yoy and cut non-GAAP net income estimate by 42% to RMB318mn due to (1) weak sales；</li>
<li>We expect 2Q24 to be the turning point for earnings due to (1) sales improving with weather warm-up (2) ASP rebound from easing competition </li>
<li>We maintain the stock as BUY rating but lower TP by US$4 to US$37 to factor in the temporary near-term weak sale.</li>
</ul>


We cut Luckin Coffee’s 1Q24 revenue estimate by 3% to RMB7.9bn with 79% yoy and cut non-GAAP net income estimate by 42% to RMB318mn due to (1) weak sales；
We expect 2Q24 to be the turning point for earnings due to (1) sales improving with weather warm-up (2) ASP rebound from easing competition 
We maintain the stock as BUY rating but lower TP by US$4 to US$37 to factor in the temporary near-term weak sale.


[Luckin Coffee (LKNCY US, BUY, TP US$37) TP Change]:Weak Sales in 1Q24 but Likely to Improve in 2Q24

<ul>
<li>Luckin Coffee reported 4Q23 revenue/non-GAAP NI in-line/(39.8%) vs. our estimate due to (1) extra winter subsidies; (2) rental cost from new stores; (3) more operating expenditures.</li>
<li>We view the non-GAAP NPM decline to 5.1% in 4Q23 as temporary and outlook for sequential improvements in 1H24 from (1)ASP rebound from easing competition, (2)efficiency improvement in rental cost</li>
<li>We think Luckin’s profitability outlook is intact and maintain BUY rating, but lower TP by US$2 to US$41 to factor in the rising cost.</li>
</ul>


Luckin Coffee reported 4Q23 revenue/non-GAAP NI in-line/(39.8%) vs. our estimate due to (1) extra winter subsidies; (2) rental cost from new stores; (3) more operating expenditures.
We view the non-GAAP NPM decline to 5.1% in 4Q23 as temporary and outlook for sequential improvements in 1H24 from (1)ASP rebound from easing competition, (2)efficiency improvement in rental cost
We think Luckin’s profitability outlook is intact and maintain BUY rating, but lower TP by US$2 to US$41 to factor in the rising cost.


[Luckin Coffee (LKNCY US, BUY, TP US$41) TP Change]: Weak Earnings Could Be Temporary…Reiterate BUY

Thematic (Sector/Industry)

<ul>
<li>ATAT/TCOM: Tourism: Local government will issue RMB600mn travel consumption subsidies during CNY(+)</li>
<li>9995 HK/BGNE/9926 HK/1801 HK/1877 HK:The National Medical Insurance Administration issued new regulations on the initial price of newly launched drugs to protect the independent pricing of innovative drugs.(/)</li>
<li>300750 SZ：Porsche's new Taycan doubles cruising range, uses CATL Shenxing battery(+)</li>
</ul>


ATAT/TCOM: Tourism: Local government will issue RMB600mn travel consumption subsidies during CNY(+)
9995 HK/BGNE/9926 HK/1801 HK/1877 HK:The National Medical Insurance Administration issued new regulations on the initial price of newly launched drugs to protect the independent pricing of innovative drugs.(/)
300750 SZ：Porsche's new Taycan doubles cruising range, uses CATL Shenxing battery(+)


[Blue Lotus Daily]: LKNCY/ZLAB/9995 HK/BGNE/9926 HK/1801 HK/1877 HK/ATAT/TCOM/1211 HK/LI/NIO/XPEV

Blue Lotus Non US Internet research, Blue Lotus Research Institute

Ying Pan

Blue Lotus Non US Internet research

<ul>
<li>JD/BABA/PDD : JD increases salaries for customer service staff (-)</li>
<li>700 HK: News has surfaced indicating that Tencent is in the process of developing a mobile game adaptation of "Elden Ring." (+) </li>
<li>700 HK/LKNCY: Tencent's &lt;Dream Star&gt; has collaborated with Luckin Coffee for a co-branding initiative (+)</li>
</ul>


JD/BABA/PDD : JD increases salaries for customer service staff (-)
700 HK: News has surfaced indicating that Tencent is in the process of developing a mobile game adaptation of "Elden Ring." (+) 
700 HK/LKNCY: Tencent's &lt;Dream Star&gt; has collaborated with Luckin Coffee for a co-branding initiative (+)


[Blue Lotus Daily - TMT Update]:JD/BABA/PDD/700 HK/LKNCY

<ul>
<li>LKNCY: Luckin Coffee further raised subsidy to franchisees in winter season(-)</li>
<li>XPEV/LI/NIO/1211 HK:Deliveries of new energy vehicles generally continued to pick up in the last three days of January, except for NIO(+/+/-/+)</li>
<li>300750 CH: EVE's large cylindrical battery in production, increasing the threat to CATL a little bit(-)</li>
</ul>


LKNCY: Luckin Coffee further raised subsidy to franchisees in winter season(-)
XPEV/LI/NIO/1211 HK:Deliveries of new energy vehicles generally continued to pick up in the last three days of January, except for NIO(+/+/-/+)
300750 CH: EVE's large cylindrical battery in production, increasing the threat to CATL a little bit(-)


[Blue Lotus Daily]:LKNCY/XPEV/LI/NIO/1211 HK/300750 CH

China

Luckin Coffee Inc. provides non-alcoholic beverages. The Company offers various types of coffee. Luckin Coffee serves customers in China.

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Luckin Coffee (LKNCY US)