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>Luckin reported C4Q24 revenue 6%/1% higher than our estimate/consensus, and non-GAAP operating profit 11%/38% higher than our estimate/consensus, driven by SSSG recovery and cost material savings;</li>
<li>After turning around same-store-sales-growth (SSSG) via price hike in C3Q24, Luckin finetuned the cup sales to price ratio to reach an optimal point in C4Q24, </li>
<li>We upgrade Luckin from UR into BUY rating and set new TP at US$40.  </li>
</ul>


Luckin reported C4Q24 revenue 6%/1% higher than our estimate/consensus, and non-GAAP operating profit 11%/38% higher than our estimate/consensus, driven by SSSG recovery and cost material savings;
After turning around same-store-sales-growth (SSSG) via price hike in C3Q24, Luckin finetuned the cup sales to price ratio to reach an optimal point in C4Q24, 
We upgrade Luckin from UR into BUY rating and set new TP at US$40.  


[Luckin (LKNCY US, BUY, TP US$40) Rating Change]: Optimum Cup Sales and Price Mix Hit the Sweet Spot

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mixue-group" target="_blank" data-smartkarma-citation="entities:40623:1" rel="noopener">Mixue Group (MIX HK)</a>'s IPO price of HK$202.5 looks attractive, as it is priced at 16.6x FY24 and 13.5x FY25 PER, below the mainland China peer average. </li>
<li>We estimate a P/B of 4.6x, putting it marginally lower than the sector best-fit line. We think there is potential for at least a 20-30% upside after the IPO. </li>
<li>MIXUE offers the possibility to participate in the spin-off of its overseas businesses in the medium term, which is explicitly spelt out as a plan.</li>
</ul>



Mixue Group (MIX HK)'s IPO price of HK$202.5 looks attractive, as it is priced at 16.6x FY24 and 13.5x FY25 PER, below the mainland China peer average. 
We estimate a P/B of 4.6x, putting it marginally lower than the sector best-fit line. We think there is potential for at least a 20-30% upside after the IPO. 
MIXUE offers the possibility to participate in the spin-off of its overseas businesses in the medium term, which is explicitly spelt out as a plan.


MIXUE Group (2097 HK) IPO: Reasonably Attractive Pricing

External broker reports(aggregated public sources), CMB International

CMB International

External broker reports(aggregated public sources)

Incorporated in Hong Kong, supported by the mainland and targeting in global market, CMB International Capital Corporation Limited (“CMBI”) is an integrated financial institution providing comprehensive and professional services. As a wholly-owned subsidiary of China Merchants Bank ("CMB"), by leveraging on the Group’s synergy and coordination in domestic and overseas markets, as well as CMB’s strong resources and outstanding social reputation, CMBI and its subsidiaries have been actively implementing diversified business strategies and set up an overall layout of main business segments including Corporate Finance, Asset Management, Wealth Management, Global Markets and Structured Finance, etc. Adhering to the philosophy of “being clients oriented and increasing our own values by the way of creating value for clients”, CMBI endeavors to provide quality and integrated financial services to institutional, corporate and individual customers both domestic and overseas including Hong Kong IPO sponsorship and underwriting, share placement and rights issue for listed companies, financial advisors, bonds issuance services, asset management, direct investment, wealth management, equity sales and trading, etc.

<ul><li>We believe SSSG and margin expansion in 4Q24 are strong beats and Luckin’s ability to cope with costs inflation has not been fully appreciated by all investors , which may serve as a share price catalyst in the future.</li><li>The stock is trading at 17x FY25E, still undemanding vs peers given its rapid net profit CAGR.</li><li>Positive SSSG was resumed in Dec 2024 and management is confident on gradual improvement (even though ASP may remain stable).</li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

We believe SSSG and margin expansion in 4Q24 are strong beats and Luckin’s ability to cope with costs inflation has not been fully appreciated by all investors , which may serve as a share price catalyst in the future.The stock is trading at 17x FY25E, still undemanding vs peers given its rapid net profit CAGR.Positive SSSG was resumed in Dec 2024 and management is confident on gradual improvement (even though ASP may remain stable).Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Luckin Coffee (LKNCY US) - Turning Around in Styles After the Strong Beat

<ul>
<li>
<a href="https://www.smartkarma.com/entities/mixue-group" target="_blank" data-smartkarma-citation="entities:40623:1" rel="noopener">Mixue Group (MIX HK)</a> has a whopping market share of 32.7% in 2023, based on number of cups sold. It also has the highest profit in the sector.</li>
<li>With a strong profit record and net cash, it is a leader that captures industry growth. Its extensive network targets low-tier cities' potential and the franchise model drives expansion.  </li>
<li>It justifies trading on a premium to sector average PER of 19.6x for FY25. If aligning P/B with ROE on the best-fit line, it should be priced at 5.1x pre-money.</li>
</ul>



Mixue Group (MIX HK) has a whopping market share of 32.7% in 2023, based on number of cups sold. It also has the highest profit in the sector.
With a strong profit record and net cash, it is a leader that captures industry growth. Its extensive network targets low-tier cities' potential and the franchise model drives expansion.  
It justifies trading on a premium to sector average PER of 19.6x for FY25. If aligning P/B with ROE on the best-fit line, it should be priced at 5.1x pre-money.


MIXUE Group IPO: The Leading Player that Justifies a Premium

<ul><li>Luckin Coffee is the largest and fastest-growing coffee brand in China. Founded in Jun 2017, Luckin Coffee mainly sells mid-priced (around RMB 10 to 20 per cup) coffee drinks.</li><li>The company also emphasizes digital engagement, convenience, and competitive pricing.</li><li>By 2023, it already has 16,248 stores (10,628 self-operated stores and 5,620 partnership stores) and generated an annual sales of RMB 24.9bn (plus a net profit of RMB 2.85bn), accounting for a remarkable market share of 21.7% in the chained cafe segment in China. </li></ul>Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Luckin Coffee is the largest and fastest-growing coffee brand in China. Founded in Jun 2017, Luckin Coffee mainly sells mid-priced (around RMB 10 to 20 per cup) coffee drinks.The company also emphasizes digital engagement, convenience, and competitive pricing.By 2023, it already has 16,248 stores (10,628 self-operated stores and 5,620 partnership stores) and generated an annual sales of RMB 24.9bn (plus a net profit of RMB 2.85bn), accounting for a remarkable market share of 21.7% in the chained cafe segment in China. Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

Luckin Coffee (LKNCY US) - Unbeatable Costs, Branding and R&D Power

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)

[Luckin (LKNCY US, BUY, TP US$40) Rating Change]: Optimum Cup Sales and Price Mix Hit the Sweet Spot

Luckin's strong revenue and profit performance in C4Q24 driven by SSSG recovery and cost savings leads to upgrade to BUY rating with TP of US$40.

Blue Lotus Research Institute

MIXUE Group (2097 HK) IPO: Reasonably Attractive Pricing

MIXUE's IPO is attractive, priced below China's peer average with a potential for at least 20-30% upside post-IPO. Opportunity to participate in...

Osbert Tang, CFA