20210810-招银国际-奈雪的茶-02150.HK-A_prestigious_teahouse_brand_in_the_making_75页_5mb

Summary of Nayuki Holdings Limited (2150 HK) Equity Research

Core Content

Nayuki Holdings Limited (2150 HK) is a leading and premium modern teahouse chain in China, known for its high-quality products, upscale store design, and modern customer experience. Founded in 2015, the brand has grown rapidly, with 491 stores and RMB 2,871 million in sales in FY20, achieving a 78% store CAGR and 68% sales CAGR from FY18 to FY20. It also owns the Tai Gai brand, which has 64 stores and RMB 153 million in sales in FY20.

Despite initial losses from brand building and market expansion, Nayuki's mature stores have achieved industry-leading operating margins. The brand is ranked No.2 in the premium teahouse/tea industry in China by sales, with a market share of 18.9% in 2020. It is highly competitive, evidenced by its 4.5 out of 5.0 rating on Dianping.com, which is second only to Heytea and ahead of Starbucks and other major competitors. Its average sales per order is RMB 43.0, reflecting its premium positioning.

Nayuki has a strong focus on innovation, with a new product launch every week and over 60 seasonal products since FY18. The brand has also expanded into top shopping malls, with 28 out of 50 locations, and is implementing the PRO store strategy to enhance convenience, increase SKUs, and target a wider customer base. We estimate that ~70% of its future store expansion will be in the PRO format.

Main Points and Key Information

• Market Position: Ranked No.2 in the premium teahouse industry in China by sales in 2020 with 18.9% market share.
• Sales Growth: Achieved a 78% store CAGR and 68% sales CAGR from FY18 to FY20, with a strong presence in top shopping malls.
• Product Quality: Offers high-quality tea and baked goods, with a COGS of 37% of sales, higher than industry peers.
• Customer Experience: Provides a warm, comfortable, and relaxing ambiance, comparable to Starbucks' "Third Place Principle".
• Digitalization: Utilizes digital tools for customer analytics, crew scheduling, and inventory management to improve efficiency and profitability.
• PRO Stores: Expected to be a significant growth driver, with ~70% of future store additions projected to be PRO stores.
• Financial Projections:
  • Sales CAGR: 46% for Nayuki stores, -2% per store, and 10% for Tai Gai & others, leading to a 41% overall sales CAGR in FY20-23E.
  • Adj. Net Profit CAGR: Expected to reach 180% in FY21E, driven by normalization of GP margins, higher PRO store mix, and economies of scale.
• Valuation: Initiated as a BUY with a target price of HK$16.68, implying a 3.6x FY22E P/S, which is a 59% premium over China peers' average of 2.3x P/S.

Growth Drivers

• Premium Branding: Strong brand recognition and reputation, supported by high customer ratings and significant A&P investments.
• Innovation: Regular introduction of new SKUs, with a high frequency of product launches and seasonal offerings.
• Digital Transformation: Enhancing store operations and customer engagement through digital tools.
• PRO Store Expansion: Increasing store efficiency and customer coverage through new store formats.
• Market Expansion: Penetration into top-tier cities and international markets, including Japan.

Financial Highlights

• Revenue Growth:
  • FY18A: RMB 1,087 million
  • FY19A: RMB 2,502 million (+130.2% YoY)
  • FY20A: RMB 3,057 million (+22.2% YoY)
  • FY21E: RMB 4,804 million (+57.1% YoY)
  • FY22E: RMB 6,620 million (+37.8% YoY)
  • FY23E: RMB 8,601 million (+29.9% YoY)
• Adjusted Net Profit:
  • FY21E: RMB 58 million
  • FY22E: RMB 372 million (+237.2% YoY)
  • FY23E: RMB 555 million (+44.3% YoY)
• Adjusted P/E:
  • FY21E: 117.6x
  • FY22E: 34.9x
  • FY23E: 24.3x
• P/S:
  • FY21E: 2.9x
  • FY22E: 2.1x
  • FY23E: 1.6x

Investment Thesis

• BUY Initiation: Based on strong growth potential, brand prestige, and digital transformation.
• Target Price: HK$16.68, implying a 3.6x FY22E P/S.
• Valuation Method: Discounted Cash Flow (DCF) with a WACC of 8.1% and terminal growth of 3.5%.
• Competitive Position: Strong customer ratings, high brand recognition, and a unique combination of product quality and store environment.

Shareholding Structure

• Mr. Zhao Lin & Ms. Peng Xin: 56.98%
• Tiantu Capital: 11.09%
• Employee Incentive Platform: 5.35%
• PAGAC Nebula: 5.28%
• Shenzhen Capital Group: 2.82%
• Free Float: 18.47%

Key Risks

• Market Saturation: As the teahouse market becomes more competitive, growth may slow.
• Supply Chain Disruptions: Reliance on fresh ingredients and imported goods may affect operations.
• Economic Conditions: Consumer spending on premium products may be affected by economic downturns.
• Competition: Intense competition from established brands like Heytea and Starbucks.