20221206-招银国际-奈雪的茶-02150.HK-Acquiring_LELECHA_at_a_bargain_price_10页_1mb

CMB International Global Markets | Equity Research | Company Update Summary

Core Content Overview

Nayuki Holdings Limited (2150 HK) has announced the acquisition of a 43.64% stake in LELECHA at a total consideration of RMB 525 million. This acquisition is valued at RMB 1,203 million, implying a P/S ratio of 1.4x for FY21 and 1.6x for FY20, which is significantly discounted compared to peers' average of 3.0x and Nayuki's own 2.4x.

Key Information

• Transaction Details:

  • The total consideration includes RMB 325 million in shares transfer and RMB 200 million in capital increases.
  • Nayuki will also utilize a short-term loan of up to RMB 80 million.
  • Upon completion, Nayuki will become the largest shareholder of LELECHA.

• LELECHA Performance:

  • Generated sales of around RMB 870 million in FY21.
  • Recorded net losses of RMB 18 million in FY21.
  • Operates approximately 148 stores in 1H23.

• Strategic Implications:

  • LELECHA will remain operationally independent, retaining its branding, management team (Mr. Li Ming Bo as General Manager), and operations.
  • Nayuki will provide resources for store development, supply chain, and digitalization to support LELECHA's growth.
  • This acquisition is expected to reduce competition in the high-end tea drink market, as both companies previously bid for similar mall locations.
  • Synergies are anticipated in areas such as supply chain, marketing, and product launches, which could boost OP margins for both entities.

Main Viewpoints

• Valuation:

  • The acquisition is considered highly attractive, with LELECHA's P/S ratio significantly lower than industry peers.
  • The implied valuation is a 53% discount to peers' average P/S ratio of 3.0x.

• Financial Potential:

  • If LELECHA expands to 300-500 stores and achieves a net profit margin of ~10%, there is potential for significant financial returns.
  • Current net profit margin is -2.1%, with the potential to improve to match Starbuck China's standards.

• Market Positioning:

  • LELECHA has a strong presence in Shanghai, where daily sales per store are RMB 20-25K, compared to Nayuki's RMB 17K.
  • This positions LELECHA as a key partner for Nayuki to penetrate the Shanghai and Eastern China markets.

• Synergy Potential:

  • The acquisition is expected to result in meaningful synergy, especially in cost control and operational efficiency.
  • It could also help Nayuki in leveraging LELECHA's expertise in store development and digital transformation.

Earnings Summary

Valuation and Investment View

• Target Price: HK$7.38 (Maintained from previous target price).
• Current Price: HK$7.20.
• Up/Downside: 2.5%.
• Valuation Method: DCF method with a WACC of 15.1% and terminal growth of 2.0%.
• Valuation Metrics:
  • FY23E: ~43x P/E and ~1.5x P/S.
  • These are much lower than the industry average of 2.1x P/S.

Shareholding Structure

Share Performance

Valuation Comparison with Peers

DCF-Based Valuation

• Assumptions:

  • Sales CAGR: 29% for FY20-25E.
  • EBITDA CAGR: 45% for FY20-25E.
  • EBITDA margin: 13.2% in FY25 (from 7.4% in FY20).
  • WACC: 15.1% (based on 4.0% cost of debt, 20.0% risk premium, beta of 0.8x, 19.0% cost of equity, 25% debt/equity ratio).
  • Terminal growth: 2.0%.

• Valuation Metrics:

  • DCF (21E-25E): HK$10,756 million.
  • Fully diluted equity value/share (HK$): 7.38.
  • Adjusted P/E (FY23E): 43.0.
  • P/S (FY23E): 1.5.

Sensitivity Analysis

Conclusion

The acquisition of LELECHA is viewed positively, with the potential to significantly enhance Nayuki's market position and financial returns. The low entry price, combined with the strategic benefits of operational independence and synergies, makes this a compelling investment opportunity. The DCF valuation model supports the target price, suggesting that the stock is undervalued relative to peers.