China/Asia TMT

Shawn Yang

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 Coffee’s new blockbuster Moutai Latte achieved 5.42mn cup sold with RMB100mn GMV in first day. </li>
<li>We think Luckin Coffee had effectively achieved two goals through the new premium product: 1) de facto price lifting; 2) extend potential customer base and step into the monetization stage.</li>
<li>We raised our 2023 revenue and non-GAAP NI on Luckin by 1.6%/4.4%. We maintain the stock as BUY rating and raise TP by US$1 to US$44/ADS.</li>
</ul>


Luckin Coffee’s new blockbuster Moutai Latte achieved 5.42mn cup sold with RMB100mn GMV in first day. 
We think Luckin Coffee had effectively achieved two goals through the new premium product: 1) de facto price lifting; 2) extend potential customer base and step into the monetization stage.
We raised our 2023 revenue and non-GAAP NI on Luckin by 1.6%/4.4%. We maintain the stock as BUY rating and raise TP by US$1 to US$44/ADS.


[Luckin Coffee (LKNCY US, BUY, TP US$44) TP Change]: Moutai Latte Is Not Just a Blockbuster

<ul>
<li>Luckin Coffee reported 2Q23 revenue beat our est. by 7.5%, and non-GAAP NI beat our estimate by 84.1%. </li>
<li>The top-line beat is driven by stronger product sold on average store sales, the bottom-line beat is driven by economies of scale and less than estimated sales promotion.  </li>
<li>We maintain the stock as BUY rating and raise TP by US$5.5 to US$43/ADS (27x PE in 2023) to factor in the outlook of sustainable margin improvement.</li>
</ul>


Luckin Coffee reported 2Q23 revenue beat our est. by 7.5%, and non-GAAP NI beat our estimate by 84.1%. 
The top-line beat is driven by stronger product sold on average store sales, the bottom-line beat is driven by economies of scale and less than estimated sales promotion.  
We maintain the stock as BUY rating and raise TP by US$5.5 to US$43/ADS (27x PE in 2023) to factor in the outlook of sustainable margin improvement.


[Luckin Coffee (LKNCY US, BUY, TP US$43) TP Change]: Economies of Scale Brings Margin Improvement

<ul>
<li>Our 1H23 revenue estimate is 8.7% lower than consensus, and we expect 1H23 NPM at breakeven vs. consensus at 5%。</li>
<li>Mainly because teahouse brands in China had suffered the intensified competition from the price war in Coffee industry.</li>
<li>We maintain the stock as BUY rating as the margin improvement process is gradual showing effect, while we lower TP by US$2 to US$9.3 to reflect the intensified competition pressure.</li>
</ul>


Our 1H23 revenue estimate is 8.7% lower than consensus, and we expect 1H23 NPM at breakeven vs. consensus at 5%。
Mainly because teahouse brands in China had suffered the intensified competition from the price war in Coffee industry.
We maintain the stock as BUY rating as the margin improvement process is gradual showing effect, while we lower TP by US$2 to US$9.3 to reflect the intensified competition pressure.


[Nayuki (2150 HK, BUY, TP HK$9.3) TP Change]: Store Operating Profit Margin Improvement On-Track

<ul>
<li>We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .</li>
<li>Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. </li>
<li>We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.</li>
</ul>


We expect Luckin to report 2Q23 rev. at 75.0% YoY and 30.1% QoQ to RMB5,771mn. We expect GPM, non-GAAP OPM, non-GAAP NPM to decline 3.7ppt, 3.6ppt, and 3.9ppt QoQ .
Luckin is putting scale ahead of profitability, surpassing 10k total stores in 2Q23 and heading to 12k total stores in 2023, while maintaining a decent margin. 
We maintain the stock as BUY rating and cut TP by US$3.5 to US$37.5 (36x PE in 2024) to factor in the margin dilution effect from sales promotion.


Luckin Coffee (LKNCY US, BUY, TP US$37.5) TP Change:Promotion and Expansion Are the Main Theme

<ul>
<li>Cotti Coffee has become a head-to-head competitor of Mixue’s Lucky Cup, and to a lesser degree, Luckin. </li>
<li>But what is behind Cotti’s agenda, in our view, is its founder Charles Lu’s aspiration to return to Luckin;</li>
<li>The biggest obstacle for Charles to repeat the playbook of Steve Jobs is Chinese security regulator’s refusal, so far, to allow franchised chain to list</li>
</ul>


Cotti Coffee has become a head-to-head competitor of Mixue’s Lucky Cup, and to a lesser degree, Luckin. 
But what is behind Cotti’s agenda, in our view, is its founder Charles Lu’s aspiration to return to Luckin;
The biggest obstacle for Charles to repeat the playbook of Steve Jobs is Chinese security regulator’s refusal, so far, to allow franchised chain to list


[Luckin Coffee Inc. (LKNCY US) Company Update]: Is Cotti Coffee Charles Lu’ NeXT Computer?

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)