Behind the continuous record high of the stock price: Where is the boundary of GUMING(01364) regional expansion?

From the beginning of this year, the new tea drink track has been very lively, with many top companies in the industry going public one after another. From HEYTEA to Chatime, the new tea drink industry is grabbing the spotlight. Among the new tea drink stocks that went public this year, GUMING (01364) stands out the most. It was noticed that on May 2nd, GUMING surged more than 8%, reaching a high of 26.5 Hong Kong dollars, setting a new record high since its IPO. Looking back over time, since its listing on February 12th, the company's stock price has risen nearly 160%. Behind the continuous celebration of stock prices, what are the highlights of GUMING? The "Regional Encryption" strategy is effective and revenue and net profit are steadily increasing It is noted that GUMING is a fast-growing Chinese ready-to-drink company that is committed to providing consumers with fresh, delicious, affordable, and high-quality products. According to GMV projections for 2023, the "GUMING" brand is the largest mass-produced tea beverage chain in China, with a market share of 17.7%. It is worth mentioning that unlike other top brands with a national presence, since its establishment in 2010, GUMING operated nearly ten thousand stores but has not covered the entire country. The company mainly operates on a light asset franchise model, with only 7 directly operated stores contributing about 99.9% of GMV. By the end of 2024, GUMING had a total of 9914 stores in China, covering 17 provinces, mainly concentrated in the East and South regions, and has not yet entered the overseas market. It is understood that GUMING employs a unique "Regional Encryption" strategy: it expands to neighboring provinces only after reaching a key scale of over 500 stores in a single province. Among the 17 provinces that GUMING has entered, eight provinces that have exceeded the key scale contribute 83% of the GMV. HAITONG INT'L pointed out that GUMING targets the consumption upgrade demand of beverages in medium and small cities by surrounding cities with rural areas, establishing an absolute advantage in the sinking market. According to the company's financial reports, by the end of 2024, GUMING had 5091 stores in third-tier cities and below, accounting for about 51% of the total number of stores; second-tier cities and below accounted for about 80%, higher than other major ready-to-drink brands in China. By the end of 2024, GUMING's stores in towns accounted for 41%, an increase of 3 percentage points compared to the previous year, making it the highest among the top five mass-produced tea beverage chains in China. Although the store layout is regionalized, the existing store quality is very high. Data shows that in 2023, the average annual operating profit of franchise stores reached 376,000 yuan, with an operating profit margin of 20.2%, 1.5-2.0 times the industry average. Haitong stated that as a leading brand in the number of store locations in the Chinese ready-to-drink industry, GUMING has a solid supply chain foundation, high operational efficiency, and great room for growth. Some analysts have pointed out that GUMING is more like a supply chain company. It was noted that nearly 80% of the company's income comes from selling fruits, fruit juice, tea, dairy products, packaging materials, and other goods to franchisees. This is also an area that GUMING has been focusing on in recent years, continuously building its own raw material production base, food processing plants, and self-operated warehousing facilities. Shenwan Hongyuan Group pointed out that GUMING has the largest cold chain warehousing and logistics infrastructure among the top ten ready-to-drink tea beverage brands in China. Among these brands, GUMING is the only one that can provide short shelf-life fresh fruits and milk with two-day delivery service to stores in low-tier cities. With multiple advantages driving its growth, GUMING's revenue has been steadily increasing in recent years. From 2021 to 2024, the company's revenue was 43.8 billion yuan, 55.6 billion yuan, 76.8 billion yuan, and 87.9 billion yuan, with a slight slowdown in revenue growth rates from 2022 to 2024, which were 26.8%, 38.1%, and 14.5% respectively. At the same time, the company's gross profit margin decreased in 2024. The overall gross profit margin in 2024 was 30.6%, a year-on-year decrease of 0.7 percentage points, mainly due to the company providing more incentives to franchisees to improve their profitability. HAITONG INT'L pointed out that with the company's continued expansion in scale, further improvement in supply chain efficiency, and adjustments to product category structures, there is still room for an increase in gross profit margin. China Galaxy Securities believes that against a background of overall market difficulties in 2024, the company achieved resilient net profit growth, with a year-on-year increase of 5.7% to 1.542 billion yuan after adjustments, which was not easy and was mainly due to the company's light asset franchise model, improved supply chain efficiency, and excellent cost control. According to a CICC report, GUMING has significant core competitive advantages, including strong and complete supply chain management capabilities that support the replication of its regional encryption model nationwide. Secondly, its strong digital capabilities and robust franchisee management system support high-quality store expansion, with franchisees leading the industry in profitability. Finally, the company leverages its strong research and development capabilities to create a high-quality, affordable, and dynamic product matrix. With a balanced combination of fruit tea and milk tea products, and with strong research and development support, the company launched 103 new products in 2024, ensuring both the speed and quality of new releases. In 2023, the company's average quarterly repurchase rate was 53%, which is higher than the industry average. Despite these advantages, the outlook for the tea drink industry is fierce, with expectations of slower market growth However, looking at the industry prospects, the competitive landscape of the new tea drink industry can be described as intense. After experiencing rapid growth, the growth rate of the new tea beverage industry has significantly slowed down. According to data from the China Chain Store & Franchise Association, the annual growth rate of the market size is expected to decrease from 44.3% in 2023 to 12.4% in 2025. In 2024, the industry had more than 20,000 store closures, with a daily average order volume per store dropping by 18%, and the closure rate exceeding 25% for three consecutive years. Regarding GUMING specifically, the company also acknowledges facing fierce competition from other ready-to-drink tea brands in various areas.Including product research and development and innovation, product quality and consistency, cost-effectiveness, store location, consumer experience, and consumer acquisition and retention. In fact, looking at the current situation, the new tea beverage industry is facing a dilemma of homogenization, with companies finding it difficult to differentiate themselves solely through their products, especially under the influence of price wars, where products from different brands are becoming increasingly similar in taste and quality. The lack of breakout products in the past two years has further weakened brand effects. GUMING may not be able to effectively compete with other made-to-order tea shops, and may be surpassed by other made-to-order tea shops.In addition, intense competition may lower GUMING's market share and profitability, and may require the company to increase sales and marketing efforts and capital investment in the future. This could have a negative impact on the company's business performance. It is worth noting that in 2024, GUMING increased its promotional efforts in terms of traffic due to intensified market competition, with sales expenses increasing by 1.1 percentage points year-on-year to 5.5%. The risks of the franchise model should also be taken seriously. Several new tea beverage brands have admitted that if franchise stores fail to strictly adhere to uniform operational standards - including irregular operations or substandard hygiene management, it may not only lead to product quality issues, but also escalate into food safety incidents, ultimately seriously damaging brand reputation and business performance. In the whole year of 2025, GUMING will focus on dining in, and is expected to introduce student discount cards to promote continuous in-store consumption among student groups. At the same time, breakfast scenes will be increased, and coffee and baking products will be promoted to increase in-store consumption during the morning period, with approximately 7,000 stores currently equipped with coffee machines. In addition, the company will continue to focus on store encryption during the period, fill in blank markets, and consolidate existing market competitive advantages. CICC emphasized that considering GUMING's unique regional encryption model, stores that are more densely located in a single region have a stronger aggregation effect. It is expected that old stores will also maintain a steady growth trend. Overall, in the past few years, GUMING has achieved rapid growth in scale and performance with its unique business model of "regional encryption". However, overall, the industry that the company is in has a relatively low entry barrier. How to maintain long-term competitive advantages and break through the homogenization dilemma will be the key challenges for its future development. At the same time, in the process of franchise expansion, how to balance scale growth with quality control management, and continue to build differentiated product capabilities, are topics that the management needs to focus on.