Analyst reveals largest challenge for Mixue after stellar market debut

Mixue could face challenges in growing its footprint in the tier 1 cities, according to a Zephirin Group analyst.

Longdley Zephirin’s remarks arrive only hours after shares of China’s largest bubble tea chain rallied more than 40% on their Hong Kong debut.

Mixue sold a total of 17.06 million shares in its initial public offering (IPO) and raised HK$3.45 billion ($440 million) on Monday.

Mixue could find it hard to expand to tier 1 cities

Mixue has so far steered clear of high-cost real estate markets to focus entirely on tier 2 and tier 3 cities.

This has enabled it to gain immense popularity among price-sensitive consumers.

The bubble tea company offers products at up to 50% discount to rivals, which Longdley Zephirin dubbed “significant cost savings” for consumers.

However, the company based out of Zhengzhou, Henan will face higher operational costs and increased competition from the likes of “HEYTEA” once it goes after the central business districts (CBDs), he argued in a CNBC interview on Monday.

That said, the Zephirin Group analyst does not expect Mixue to chase tier 1 cities anytime soon, adding “it will maintain its local operations, in tier 2, tier 3 cities, and continue to push volume” for now.

Could Mixue consider expansion into the US or Europe?

Mixue already has a meaningful footprint across Southeast Asia – and is on the lookout currently for new regions to expand its operations and, by extension, its customer base.   

This could include the US as well as parts of Europe, according to Longdley Zephirin, who expects going beyond its current locations to help Mixue compete more fiercely with HEYTEA.

Both regions have large, diverse markets with a high demand for innovative and affordable food and beverage options, which presents a significant opportunity for Mixue to tap into new customer bases.

Plus, the US and European countries are known for strong franchise models that may further help Mixue in terms of brand recognition and global presence via local partnerships and investments.  

Is it already too late to invest in Mixue stock?

Investors should know that China’s Mixue boasts a solid balance sheet at present.

The chain of ice cream and iced tea stores had well over $6.0 billion in cash at the end of its most recent quarter.

In the trailing 12 months, Mixue has generated $23.57 billion in revenue and $4.22 billion in net income attributable to its common shareholders.

Additionally, the Hong Kong listed firm’s debt-to-equity ratio currently sits at 3.64%.

That made cornerstone investors like Meituan’s Long-Z Fund and M&G Investments participate in its more than 5,200 times oversubscribed IPO.

The bookrunners for the Mixue’s initial public offering were UBS, Goldman Sachs, and the Bank of America Securities.

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