HK/China Equity Long-Short

Osbert Tang, CFA

Equity Capital Markets

<ul>
<li>
<a href="https://www.smartkarma.com/entities/auntea-jenny-shanghai-industrial-co-ltd" target="_blank" data-smartkarma-citation="entities:40891:1" rel="noopener">Auntea Jenny (Shanghai) Industrial (2589 HK)</a>'s IPO price is set at HK$113.12, which is aggressive based on its financial and operational metrics. </li>
<li>At 29.3x FY25F PER, Auntea Jenny's multiple is close to <a href="https://www.smartkarma.com/entities/mixue-group" target="_blank" data-smartkarma-citation="entities:40623:1" rel="noopener">Mixue Group (2097 HK)</a> and <a href="https://www.smartkarma.com/entities/guming-holdings-limited" target="_blank" data-smartkarma-citation="entities:40622:1" rel="noopener">Guming Holdings (1364 HK)</a>, but it is significantly smaller in scale and lower in profitability. </li>
<li>Our fair value of 25x PER and 5.3x P/B for FY25 means a share price of HK$94.70-96.68. Initial euphoria may inflate its debut, but we will exit on the rally.</li>
</ul>



Auntea Jenny (Shanghai) Industrial (2589 HK)'s IPO price is set at HK$113.12, which is aggressive based on its financial and operational metrics. 
At 29.3x FY25F PER, Auntea Jenny's multiple is close to Mixue Group (2097 HK) and Guming Holdings (1364 HK), but it is significantly smaller in scale and lower in profitability. 
Our fair value of 25x PER and 5.3x P/B for FY25 means a share price of HK$94.70-96.68. Initial euphoria may inflate its debut, but we will exit on the rally.


Auntea Jenny (2589 HK): What Is the Fair Value?

Equity Bottom-Up

<ul>
<li>
<a href="https://www.smartkarma.com/entities/luckin-coffee-inc" target="_blank" data-smartkarma-citation="entities:28046:1" rel="noopener">Luckin Coffee (LKNCY US)</a> concluded FY23 with a 203.3% surge in non-GAAP net profit to Rmb3.2bn, benefiting from higher store count and monthly transacting customers.</li>
<li>Luckin plans to lift store count by at least 23%, with total to reach over 20,000 in FY24. Product innovation, promotional discount reduction, and better store efficiency are profit drivers. </li>
<li>Net cash reached Rmb3.8bn, or 7% of market cap. With a consensus EPS forecast of 28% CAGR in the next two years, its 15.1x and 11.7x PERs are not stretched.</li>
</ul>



Luckin Coffee (LKNCY US) concluded FY23 with a 203.3% surge in non-GAAP net profit to Rmb3.2bn, benefiting from higher store count and monthly transacting customers.
Luckin plans to lift store count by at least 23%, with total to reach over 20,000 in FY24. Product innovation, promotional discount reduction, and better store efficiency are profit drivers. 
Net cash reached Rmb3.8bn, or 7% of market cap. With a consensus EPS forecast of 28% CAGR in the next two years, its 15.1x and 11.7x PERs are not stretched.


Luckin Coffee (LKNCY US): Feeling Lucky in a Challenging Market

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

<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

Asian Hedge Fund Manager, Long Short Equity, Macro

David Mudd

Macroeconomics

<ul>
<li>China has announced that it will significantly boost the share of domestic consumption in its next five years, while maintaining tech and manufacturing as top priorities.</li>
<li>The nation's banks will be instrumental in providing consumption financing to spur a virtual growth driver for the economy.  Easing monetary policies will be in addition to the trade-in programs.</li>
<li>Consumer in service sectors like e-commerce, travel &amp; tourism, healthcare, elderly care and AI will benefit from increasing consumption.  Local brands stand to gain market share against foreign competitors.</li>
</ul>


China has announced that it will significantly boost the share of domestic consumption in its next five years, while maintaining tech and manufacturing as top priorities.
The nation's banks will be instrumental in providing consumption financing to spur a virtual growth driver for the economy.  Easing monetary policies will be in addition to the trade-in programs.
Consumer in service sectors like e-commerce, travel &amp; tourism, healthcare, elderly care and AI will benefit from increasing consumption.  Local brands stand to gain market share against foreign competitors.


CHINA HOUSEHOLD CONSUMPTION: Unlocking Growth Potential in Five-Year Plan

Articles from Caixin Global, Caixin Global

Caixin Global

Articles from Caixin Global

Caixin is a media group dedicated to providing financial and business news through periodicals, online content, mobile apps, conferences, books and TV/video programs. Caixin aims to blaze a trail that helps traditional media prosper in the new media age through integrated multimedia platforms.

News from Caixin

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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)

Auntea Jenny (2589 HK): What Is the Fair Value?

Auntea Jenny's IPO price of HK$113.12 is aggressive based on financial and operational metrics. We arrive at a fair value estimate of HK$94.70...

Osbert Tang, CFA