HAITONG INT'L: Initial rating of GUMING (01364) is "Outperform" with a target price of HK$24.2.

HAITONG INT'L released a research report stating that it is expected that GUMING (01364) will have revenues of 10.84/12.84/14.42 billion yuan for the years 2025-27, and net profits after adjustments of 1.88/2.19/2.38 billion yuan. Based on comparable companies, due to GUMING's relatively high growth rate and leading position in the industry, as well as the scale effects and profit improvement brought about by the rapid expansion of its stores, a 25X PE ratio is given to GUMING for 2025, corresponding to a reasonable target market value of 50.6 billion Hong Kong dollars, with a reasonable target price of 24.2 Hong Kong dollars (corresponding to an exchange rate of HKD/CNY=0.93). Initial coverage is given a rating of above market. The main points of HAITONG INT'L are as follows: Company Overview A national 4A-grade ready-to-drink beverage brand. GUMING is a national 4A (Available, Adorable, Affordable, Addicted) grade ready-to-drink beverage brand that seizes the trend of Chinese consumers upgrading their beverage consumption. It focuses on the fresh, convenient, and cost-effective beverage consumption demands of consumers in medium and low-tier cities, based on the supply chain and digitalization, breaking through key markets one by one and steadily expanding nationwide. By the end of 2024, GUMING had a total of 9,914 domestic stores, covering 17 provinces in China. According to data from ZHOUICHI Consultancy, based on GMV in 2023, GUMING is the second largest ready-to-drink tea brand in China with a market share of 9.1%; if divided by price range, GUMING is the largest mass-market ready-to-drink tea brand in China with a market share of 17.7%. Ready-to-Drink Beverages The demand for upgraded ready-to-drink beverages leads the growth in the Chinese beverage market. Ready-to-drink beverages essentially arise from the upgrading demand in consumption under the background of economic growth and increase in disposable income per capita, partially substituting bottled beverages. By using fresh ingredients and a ready-to-drink method to provide products with better taste and differentiation, by improving convenience through scaling up stores, by using advanced production technology and digitalization to reduce costs and increase efficiency, and by continuously gaining market share with high cost performance. According to ZHOUICHI Consultancy data and forecasts, the compound annual growth rate of the ready-to-drink beverage industry market size from 2018 to 2023 is 22.5%, higher than the average of 9.4% in the Chinese beverage market; it is projected that from 2023 to 2028, the compound annual growth rate will be 17.6%, also higher than the average of 10.7% in the Chinese beverage market during the same period. Slow is fast, a solid foundation supports high-quality development Unlike other leading ready-to-drink beverage brands that have nationwide scale development, since its establishment in 2010, GUMING has opened over ten thousand stores but only covers 17 provinces nationwide, mainly concentrated in the East and South China regions, and has not yet entered overseas markets. Although the store layout is regionalized, the existing store quality is very high, with an average annual operating profit of 376,000 yuan per affiliate store in 2023, an operating profit margin of 20.2%, which is 1.5-2.0 times the industry average. As a brand in China with the second largest number of stores in ready-to-drink beverages, GUMING has a solid supply chain foundation, high operational efficiency, and great development space. In terms of store expansion, GUMING adopts a strategy of regional concentration, focusing on the upgraded consumption demand for beverages in medium and low-tier cities. In terms of supply chain construction, GUMING has built a complete supply chain system, supporting high-frequency cold chain distribution to stores, keeping the cost of fresh ingredients close to room temperature and maintaining stable quality. In terms of new product development, GUMING can keep up with mainstream trends in a fast and standardized way without lacking innovation. In terms of store operations, GUMING starts with digitalization and automation, and affiliates are fully committed to improving store performance. Risk Warning: Economic and consumption growth lower than expected, slowdown in the growth of the ready-to-drink beverage market, intensified industry competition, food safety risks, and slower-than-expected expansion speed.