Huachuang Securities: Initiates coverage on GUMING (01364) with a "buy" rating and a target price of HKD 27.84.

Huachuang Securities released a research report stating that GUMING (01364) is the leading domestic mid-end tea beverage company. With the penetration of new product categories, increased store expansion, and cost reduction of raw materials in the future, it is expected to achieve stable performance growth. The company predicts that from 2025 to 2027, it will achieve operating income of 11.159/13.419/15.818 billion yuan, with year-on-year growth rates of 26.9%/20.3%/17.9%; net profit attributable to shareholders will be 2.487/2.625/3.155 billion yuan, with year-on-year growth rates of 68.2%/5.5%/20.2%. The target price is 27.84 Hong Kong dollars, and it is given a "buy" rating for the first time, optimistic about its growth potential as a leader in the ready-to-drink tea industry. As of the end of 2023, the company ranked second nationally and first in the mid-end in the ready-to-drink tea market. By the first half of 2025, it had expanded to 11,179 stores through franchising, providing consumers with ready-to-drink tea products priced between 10-18 yuan, with a wide variety, fast launches, fresh ingredients, and newly launched freshly ground coffee products, achieving "fresh, active, and affordable" in the low-end market. The company's core advantages are: 1) Regional expansion: adhere to a steady expansion strategy of "expanding stores where the supply chain reaches", deeply cultivating to over 500 stores in a single province to achieve economies of scale before radiating to surrounding areas. Currently, over 41% of stores are located in towns and other areas far away from city centers, deeply penetrating the low-end market. 2) One of the strongest cold chains: GUMING is the only leading tea brand that can deliver fresh fruits and milk to stores in low-tier cities every two days. Fresh delivery covers 97% of stores, with 22 self-owned warehouses and 362 refrigerated vehicles, fruit loss rate as low as 10%, and warehouse distribution costs less than 1% of total GMV. The report mentions that the ready-to-drink beverage industry shows characteristics such as price differentiation, operational capabilities being key, and tea-coffee integration. 1) Market size and structure: According to the company's prospectus, the ready-to-drink tea market size was 211.5 billion yuan in 2023, with the 10-20 yuan popular price range accounting for 51.3%, being the largest and fastest-growing segment. With expanding consumer boundaries, healthy and fresh product trends, and increased frequency of touchpoints in all channels, the ready-to-drink tea market is expected to surpass 600 billion yuan by 2035. The delivery wars also confirm the high-frequency consumption potential of tea drinks. 2) Competition landscape: Ready-to-drink tea stores are facing structural reshuffling, with weak brands in the lower segment accelerating their exit, creating structural expansion opportunities for top brands like GUMING. High-end brands like HEYTEA and NAYUKI are still trying to price higher, while MEXUE relies on scale monopoly in the popular price range due to higher profit margins and vast market space. Constant innovation in product categories create short-term opportunities, with long-term supply chain efficiency and scale effect being key barriers. 3) Category trends: Fresh fruit tea and light milk tea are entering maturity, tea-coffee fusion is accelerating, with coffee consumption per capita in China being about 1/15 of Japan and South Korea, indicating huge potential in low-tier markets. Growth prospects: 1) Coffee business: As of June 30, 2025, it has covered over 8,000 stores, with low penetration of coffee in low-tier cities. With the advantages in store network and supply chain, GUMING is expected to cultivate coffee as a new growth engine. 2) Store expansion: Continued expansion in existing markets, with half of the domestic provinces and overseas markets yet to be fully explored, leveraging supply chain advantages to replicate successful models, providing vast long-term growth space. 3) Raw material cost reduction: The main raw material used by the company, Shenzhen Agricultural Power Group, still has significant room for cost reduction. With deepening scale effects and further consolidation of the supply chain system in the future, profits are expected to continue to increase.