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>In 4Q23, we expect Luckin Coffee revenue to increase 93% YoY to RMB7.1bn, and expect GPM/OPM to decline (5.8)/(1.3) ppt YoY to 19.0%/8.2%, respectively. </li>
<li>We cut 4Q23 operating income by 12%. In 2024, we raised our revenue estimate by 5% due to the speed up of new store opening schedule. </li>
<li>Furthermore, as price competition eased, we expect Luckin to offer less low-priced drinks, thus driving up OPM in 2024.</li>
</ul>


In 4Q23, we expect Luckin Coffee revenue to increase 93% YoY to RMB7.1bn, and expect GPM/OPM to decline (5.8)/(1.3) ppt YoY to 19.0%/8.2%, respectively. 
We cut 4Q23 operating income by 12%. In 2024, we raised our revenue estimate by 5% due to the speed up of new store opening schedule. 
Furthermore, as price competition eased, we expect Luckin to offer less low-priced drinks, thus driving up OPM in 2024.


[Luckin Coffee(LKNCY US, BUY, TP US$43) TP Change]: Weak Earnings in 4Q23 but Better Outlook in 2024

<ul>
<li>Luckin reported C1Q25 revenue in-line/6% vs. our estimate/consensus, and non-GAAP operating profit 9%/75% higher than our estimate/consensus, thanks to warmer weather and constrained marketing spending;</li>
<li>Despite Luckin pre-emptive lock-ins, rising coffee bean price shall still take its toll as Luckin's biggest rival Starbucks should be equally capable of managing the commodity price risk. </li>
<li>We keep Luckin as BUY rating but cut TP to US$39.</li>
</ul>


Luckin reported C1Q25 revenue in-line/6% vs. our estimate/consensus, and non-GAAP operating profit 9%/75% higher than our estimate/consensus, thanks to warmer weather and constrained marketing spending;
Despite Luckin pre-emptive lock-ins, rising coffee bean price shall still take its toll as Luckin's biggest rival Starbucks should be equally capable of managing the commodity price risk. 
We keep Luckin as BUY rating but cut TP to US$39.


[Luckin (LKNCY US, BUY, TP US$39) TP Change]: Coffee Bean Price Hike Hurts Margin but Boosts Sales

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>1Q25 results were a beat, but could be better if not dragged by higher sharebased compensation and effective tax rate.</li><li>Despite the cautious tone of the management, we still feel constructive for the company’s outlook in 2Q25E and the long-term growth.</li><li>Therefore, Luckin Coffee remains one of our sector top picks in 2025. </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.

1Q25 results were a beat, but could be better if not dragged by higher sharebased compensation and effective tax rate.Despite the cautious tone of the management, we still feel constructive for the company’s outlook in 2Q25E and the long-term growth.Therefore, Luckin Coffee remains one of our sector top picks in 2025. 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) - Management Is Prudent but Long-Term Story Intact

<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

<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

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)