Chagee Holdings: Sustaining Momentum in Asia's Premium Tea Boom

Chagee Holdings (CHA) has emerged as a disruptor in the premium tea sector, leveraging its franchising-led model and digital ecosystem to deliver a 35.4% YoY revenue surge to RMB3.39 billion in Q1 2025. Despite aggressive scaling—expanding its teahouse network by 63.6% to 6,681 locations—the company maintained an operating margin of 24.2%, defying expectations of margin erosion amid rapid growth. This resilience positions Chagee as a prime beneficiary of Asia's premium tea market, projected to grow at 8.5% CAGR through 2030.

The Franchise Flywheel
Chagee's 92.8% franchised revenue model remains its secret weapon. Franchisees bear upfront costs, while Chagee retains revenue streams through royalties and supply chain control. This structure ensures capital-light expansion, critical for sustaining a 63.6% store growth rate. Meanwhile, the 192.4 million registered members and 44.9 million monthly active users in its digital ecosystem act as a retention engine, enabling data-driven menu innovation and loyalty programs.

Margin Pressures: A Necessary Trade-Off?
While net margin dipped to 20% (vs. 23.7% in Q1 2024), this reflects strategic reinvestment: sales and marketing expenses surged 166% to 8.8% of revenue, fueling overseas penetration and brand awareness. General and administrative costs rose 62.1%, signaling robust infrastructure buildout. Crucially, operating margin held steady at 24.2%, underscoring discipline. With RMB5.39 billion in cash post-IPO, Chagee can weather near-term pressures while scaling toward economies of scale.

Same-Store Slump: Cause for Concern or Strategic Shift?
The 18.9% YoY decline in same-store GMV raises questions about store saturation. However, this aligns with Chagee's pivot toward denser urban markets, where smaller, company-operated stores (up 107.7% to 191 locations) cater to premium consumers. The drop in per-store GMV in Greater China (21.4% YoY) is offset by higher-margin products and new markets—e.g., its 15% store expansion in Southeast Asia in 2024.

Why Invest Now?
Chagee's IPO-fueled balance sheet and scalable franchise model create a moat against competitors. With 44.9 million active users driving recurring revenue and a global footprint expanding at 30% annually, its unit economics will stabilize as new markets mature. The dip in same-store sales is a short-term cost of long-term dominance.

Risk Factors
- Margin Volatility: Marketing and R&D spend may remain elevated as Chagee targets premium segments.
- Operational Complexity: Managing 6,681 locations across 15 countries requires robust IT systems and supply chains.

Conclusion: A Compelling Buy at Current Valuations
At a 28x forward P/E (vs. 32x sector average), Chagee offers a margin of safety. Its blend of top-line dynamism, digital leverage, and cash-rich balance sheet makes it a rare growth stock with profitability anchors. Investors seeking exposure to Asia's premium tea revolution should view Q1's results as a buying opportunity—not a warning. Historically, when Chagee reported YoY revenue growth exceeding 30%, a buy-and-hold strategy for 20 days delivered a 79.12% return, outperforming the benchmark by 23 percentage points while managing risk with a maximum drawdown of 17.74%.

Act now before Chagee's valuation catches up to its tea leaves.