Chinese Bubble-Tea Giant Guming Targets US$200 Million in Hong Kong IPO

As a seasoned investor, I've seen my fair share of red flags when it comes to Chinese companies listing on foreign exchanges. But Guming, the Chinese bubble-tea giant, has taken the cake with its recent IPO ambitions. The company is targeting a whopping US$200 million in its Hong Kong IPO, but I can't help but feel a sense of unease.

First and foremost, Guming's expansion strategy has been nothing short of aggressive. The company has been on a tear, opening new stores left and right, with a focus on ensuring the profitability of existing stores rather than pursuing rapid expansion. While this approach has allowed Guming to maintain strong profit margins, it has also led to a significant slowdown in store expansion. In the first three quarters of 2024, Guming added only 777 new stores, compared to an average monthly net increase of 194.3 stores last year.



But here's the thing: Guming's rapid expansion has come at a cost. The company's same-store GMV growth has slowed down this year, with a slight decline in the overall same-store GMV nationwide. This is the first time in the past four years that Guming has experienced a negative growth in same-store GMV, indicating that the positive feedback from the slowdown is that the profit level has been maintained.

Now, I'm not saying that Guming's IPO is doomed to fail. But I am saying that investors should be cautious and do their due diligence before jumping on the bandwagon. The tea beverage market is a red ocean market with the most brands and the fiercest competition. Guming's average customer transaction value is between 10 and 18 yuan, which is a highly competitive price range. To maintain its market share and profitability, Guming will need to continue to innovate and differentiate its products and services.

Moreover, Guming has faced several food safety issues in the past, which have negatively impacted its reputation and may affect its future growth prospects. To address this challenge, Guming will need to strengthen its food safety management and ensure the quality and safety of its products.

In conclusion, while Guming's IPO may seem like an attractive opportunity, investors should be wary of the company's aggressive expansion strategy, slowing same-store GMV growth, intense competition, food safety issues, and high debt ratio. To address these challenges, Guming will need to innovate, differentiate, strengthen its food safety management, and manage its debt more effectively. As an investor, I would advise you to proceed with caution and keep a close eye on Guming's developments.