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 1Q23 revenue beat is due to higher-than-expected store expansion, while SSSG is in-line with our estimate. </li>
<li>The normalized of RMB9.9 per cup campaign is expected to generate minor impact on Luckin Coffee’s profitability. </li>
<li>We maintain the stock as BUY and maintain TP at US$41.</li>
</ul>


Luckin Coffee 1Q23 revenue beat is due to higher-than-expected store expansion, while SSSG is in-line with our estimate. 
The normalized of RMB9.9 per cup campaign is expected to generate minor impact on Luckin Coffee’s profitability. 
We maintain the stock as BUY and maintain TP at US$41.


[Luckin Coffee (LKNCY US, BUY, TP US$41) Earnings Review]: Price War Will Work to Luckin’s Advantage

Greater China Equity Long/Short Analyst

Eric Chen

Focus Media Information Technology Co, Ltd. / Equity Bottom-Up

Focus Media Information Technology Co, Ltd. (002027 CH)

Focus Media Information Technology Co, Ltd.

<ul>
<li>Urbanization and brand premiumization are Focus Media's two long term structural drivers which will keep broadening its audience and advertiser base.</li>
<li>1Q23 results end a 5-quarter streak of profit decline and  mark the start of new profit cycle. This will usher in a meaningful stock re-rating if history is a guide.  </li>
<li>We expect at least 30% upside by the end of 2023 by applying 25x P/E (still at large discount to last profit cycle) on RMB4.9 billion net profit for 2023. </li>
</ul>


Urbanization and brand premiumization are Focus Media's two long term structural drivers which will keep broadening its audience and advertiser base.
1Q23 results end a 5-quarter streak of profit decline and  mark the start of new profit cycle. This will usher in a meaningful stock re-rating if history is a guide.  
We expect at least 30% upside by the end of 2023 by applying 25x P/E (still at large discount to last profit cycle) on RMB4.9 billion net profit for 2023. 


Focus Media (002027 CH): Light at the End of Tunnel

<ul>
<li>We think the coffee price competition, mainly between Luckin and COTTI, is temporary, and will have little impact to Luckin’s gross margin. </li>
<li>We also think COTTI’s low pricing strategy is unsustainable, and its franchisees are keen for price hike.  </li>
<li>We maintain the stock as BUY and maintain TP at US$41.</li>
</ul>


We think the coffee price competition, mainly between Luckin and COTTI, is temporary, and will have little impact to Luckin’s gross margin. 
We also think COTTI’s low pricing strategy is unsustainable, and its franchisees are keen for price hike.  
We maintain the stock as BUY and maintain TP at US$41.


[Luckin Coffee Inc. (LKNCY US, BUY, TP US$41) ]: Temporary Price Competition Has No Impact on Margin

<ul>
<li>We expect Luckin to report 1Q23 revenue at 77.0% YoY to RMB4,257mn, non-GAAP operating margin and net margin are expected to increase 12.6ppt and 9.1ppt to 16.4% and 13.2%; </li>
<li>We think the current moderate competition can bring positive externality to coffee players, whereas it may hurt street tea shops; </li>
<li>We maintain the stock as BUY and raise TP by US$1 to US$41.</li>
</ul>


We expect Luckin to report 1Q23 revenue at 77.0% YoY to RMB4,257mn, non-GAAP operating margin and net margin are expected to increase 12.6ppt and 9.1ppt to 16.4% and 13.2%; 
We think the current moderate competition can bring positive externality to coffee players, whereas it may hurt street tea shops; 
We maintain the stock as BUY and raise TP by US$1 to US$41.


[Luckin Coffee Inc. (LKNCY US) TP Change]: Strong New Product Sales Driving Seasonality Rebound

<ul>
<li>Luckin Coffee reported its 4Q22 revenue, non-GAAP operating income, and non-GAAP net income (9.1%), (11.4%), (57.9%) lower than our estimate. </li>
<li>The store temporary close due to Covid impact is the main reason for revenue miss, and the higher income tax payment is the reason for the miss on NI.  </li>
<li>We expect Luckin to catch up the store expansion schedule in 1Q23 at 730 new stores, and reach to 10,500 total stores by the end of 2023. </li>
</ul>


Luckin Coffee reported its 4Q22 revenue, non-GAAP operating income, and non-GAAP net income (9.1%), (11.4%), (57.9%) lower than our estimate. 
The store temporary close due to Covid impact is the main reason for revenue miss, and the higher income tax payment is the reason for the miss on NI.  
We expect Luckin to catch up the store expansion schedule in 1Q23 at 730 new stores, and reach to 10,500 total stores by the end of 2023. 


[Luckin Coffee Inc. (LKNCY US) Earnings Review]: A Few Bright Spots in a Transactional Quarter

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)