Mixue reaps sweet gains as stock soars on HK debut

Mixue Group, Chinese mainland's largest fresh drinks producer by retail market share, made a strong debut on the Hong Kong stock exchange, opening 29 percent above its initial public offering price at HK$262 ($33.59) per share.

This gave the company an initial market capitalization of HK$98.79 billion. As the trading day progressed, Mixue's stock price soared more than 43.2 percent, pushing its total market value beyond HK$109.3 billion.

The IPO set a record in the Hong Kong market, attracting subscription funds of HK$1.77 trillion with an oversubscription multiple of 5,125 times.

The listing underscores the growing investor interest in China's freshly made tea beverage sector, which has emerged as one of the hottest categories recently.

Mixue's debut follows the recent listing of Guming Holdings Ltd, a leading midpriced freshly made tea brand, on the Hong Kong bourse.

Both Mixue and Guming operate under a franchise-based business model, where revenue primarily comes from franchisee purchases of company-supplied ingredients and materials. This asset-light model has enabled rapid expansion.

Founded in 1997, Mixue operates 45,000 stores globally, of which 99 percent are franchised outlets.

Meanwhile, Guming, established in 2010, has expanded to 9,000 stores across China.

Both brands target lower-tier cities, with Mixue's products priced between 6 yuan ($0.82) and 8 yuan, while Guming's range from 10 to 20 yuan.

Despite the low prices, Mixue has demonstrated strong financial growth, driven by its vast store network and cost-efficient supply chain.

In 2023, the company generated 20.3 billion yuan in revenue, with net profit rising nearly 58.3 percent year-on-year to 3.2 billion yuan. In the first nine months of 2024 alone, revenue reached 18.7 billion yuan, while net profit climbed 42.3 percent to 3.5 billion yuan.

Over the period, Mixue sold about 7.4 billion cups of freshly made drinks, showing its dominant market presence.

The company's competitive edge lies in its vertically integrated supply chain, which provides cost advantages and operational efficiency.

Mixue sources key ingredients from 38 countries and regions and operates five major production bases across China.

These facilities collectively produce around 1.65 million metric tons of syrups, jams, packaging materials and other ingredients annually.

"In today's consumer market, investors primarily focus on three key aspects when evaluating freshly made tea drink companies: supply chain capabilities, sustainable development and cost-effectiveness," said Zhu Danpeng, an independent food and beverage analyst.

Zhu said that Mixue's strong supply chain has given it a significant edge over competitors.

One example of its cost-efficient model is its lemon water product, launched in 2013. To secure stable raw material prices, Mixue directly partners with fruit farmers and signs price protection agreements.

In 2020, the company established a lemon supply base in Anyue, Sichuan province, the largest lemon-producing region in the country. By 2023, Mixue's annual lemon procurement volume had reached 115,000 tons, further solidifying its bargaining power.

Mixue also operates an extensive warehousing and distribution network, ensuring fast and cost-effective supply to its franchisees. The company has built 26 warehouses across China, covering a total area of over 300,000 square meters. As of Sept 30, 2023, Mixue had achieved 12-hour delivery reach across more than 90 percent of county-level markets.

Compared to developed markets, China's fresh-made beverage sector has significant growth potential.

In 2023, an average Chinese consumer drank 22 cups of fresh-made beverages annually, a number expected to more than double to 51 cups by 2028, according to Mixue's prospectus.

That year, fresh-made beverages accounted for just 1.6 percent of total water intake in China, compared to over 10 percent in developed markets.

By 2028, the market size of China's fresh-made beverage industry, measured by terminal retail sales, is projected to reach 1.16 trillion yuan, putting it on par with the ready-to-drink beverage sector as a trillion-yuan market.