Bubble-tea giant Guming delivers first-day slump amid saturated market

Shares of bubble tea seller Guming Holdings Ltd. reversed direction after a mild rise during its trading debut on Wednesday at Hong Kong, closing with a first-day slump. 

Trading under the code 1364, the stock of Guming rose to an intraday high of HK$10.4 before dropping 6.4% from the offer price to HK$9.3 at closing. The Hang Seng Index added 2.64% to 21857.92 as of market close.

Priced at HK$ 9.94 in its initial public offering, at the top of an indicated range, Guming successfully raised $232 million in Hong Kong two days before its trading debut. 

5 cornerstone investors were introduced in its IPO with a total amount of US$71 million invested, including Huang River Investment, a subsidiary of Tencent Holdings. Guming also achieved about 195 times oversubscription, which was the second best performance among tea beverage concept stocks, surpassing Chapanda but lower than Nayuki’s 430 times.

“The plunge of Guming’s trading debut is due to the oversaturated market in China,” said Louis Wong Wai-jie, director of Phillip Securities, “the buyers are not optimistic about the industry’s prospects.”

China’s bubble tea market has developed rapidly in the past decade, with more than 60,000 related enterprises being newly registered every year since 2017, and the market value of the industry  grew to more than 300 billion RMB (HK$319. 59 billion) in 2024, according to Statista research experts.

As of today, the stock price of Chapanda, also known as CHABAIDAO, has dropped nearly 23% since its IPO in April last year, while the stock price of Nayuki Holdings Limited, China’s leading tea beverage brand, plunged more than 92% to HK$1.29.

As the leader of mid-priced bubble tea, which holds 17.7% of market share based on the Gross Merchandise Value in 2023, Guming choose to distribute nearly 80% of its stores in second-tier and below cities in mainland China, according to its prospectus.

However, Guming’s same-store GMV decreased by 0.7% due to industry slowdown and market competition in the first nine months of 2024 compared to the same period in 2023. Average number of orders per store per day has also dropped by about 3% during the same period.

Approximately 25% of the proceeds from Guming’s IPO will be used to strengthen the information technology team, and improve its digitalization of business management and store operations, said its prospectus. 

“​​Guming is planning to use information technology to help improve profitability and sales capabilities,” said Wong, “For Chinese bubble-tea brands, everyone is competing for the use of data to expand their profit margin.”

Qi Xia, co-founder of Guming, said in the listing ceremony that “having the chance to be traded at HKEX” was a milestone of his brand and marked a new development stage. 

Wong holds an optimistic view of the Hong Kong IPO market in the year of the snake. "With the regulative policy changes in China and the encouragement of HKEX, more and more mainland companies will come to do IPO in Hong Kong," he said, "this year we estimate the total amount of funds raised will reach more than 120 billion."