Wang Yun’an, the 38-year-old founder of Chinese bubble tea maker Guming Holdings, is on the cusp of becoming a billionaire as his company prepares for an initial public offering in Hong Kong that may value the firm above HK$20 billion ($2.6 billion). But analysts warn that Guming may struggle to sustain growth amid intense competition.
Wang, who is the company’s chairman and CEO, now has a net worth of $964 million mostly based on a stake in the Taizhou, Zhejiang-headquartered Guming, according to Forbes estimates. The company intends to raise up to HK$1.6 billion by selling 158.6 million shares in a range of HK$8.68 to HK$9.94 apiece, according to a Tuesday stock exchange filing.
At the top end of that range, the share sale will value Guming at HK$23.2 billion. Wang will have a stake of over 40%. Five cornerstone investors including Chinese web giant Tencent and private equity firm LVC have agreed to acquire 63.7 million shares, or 40.2% of the IPO. Public trading of Guming shares is expected to start on Feb 12, according to its prospectus.
The company plans to use the proceeds to digitalize its business, invest in its supply chain and boost marketing.
But Kenny Ng, a Hong Kong-based securities strategist at Everbright Securities, sounded a note of caution over the forthcoming share sale. Investors are likely to be aware of the struggles of fellow milk tea companies ChaPanda and Naixue, he says in messages sent via WeChat.
Both companies are listed in Hong Kong and their performances have been hurt by cut-throat competition in China’s bubble tea market. ChaPanda’s shares plunged nearly 30% on the company’s first trading day in April 2024. The milk tea maker has been trading below its IPO price ever since.
Guming’s expansion strategy is similar to ChaPanda’s. Also using a franchise model, the company operates a network of almost 10,000 stores across China, hoping to grab consumer attention with as many storefronts as possible, according to its prospectus. Like its competitors, Guming’s Good Me brand sells beverages such as bubble tea with chewy tapioca balls or freshly brewed tea mixed with fruit. It prices them between 10 yuan ($1.40) to 20 yuan per cup, the prospectus shows.
“Many milk tea makers rely on opening new stores for future growth, ” Ng says. “This reflects fierce competition in the industry. Plus, amid fluctuations in the overall economy, the market isn’t giving the milk tea sector high valuations.”
Guming didn’t respond to emailed requests for comment.
After graduating from Zhejiang Sci-Tech University with a bachelor’s degree in engineering, Wang opened the first Good Me store in his hometown of Daxi in Zhejiang Province in 2010, according to local media reports.
He initially struggled in the business and thought about closing the store, the local media reported. But after changing recipes and renovating the storefront, customers finally came. In mid 2011, Wang started to find franchisees. Together with them, he expanded across southern China.
In 2020, Guming raised its only known external financing. Investors including HongShan (formerly known as Sequoia China) and American investment firm Coatue Management put in 674 million yuan in exchange for a combined 13.2% stake, according to its prospectus.
Today, the company has a stronghold in Zhejiang, which accounts for over one fifth of its store network, according to the prospectus. In the first nine months of 2024, or the latest financial results available, Guming’s revenues grew 15.6% year-on-year to 6.4 billion yuan. Its profit was 1.1 billion yuan, up 11.8% from the same period a year earlier, the prospectus shows.
The company has acknowledged potential growth worries.
“A recent general industry slowdown and increased industry competition has slowed the pace of our new store openings and led to the decreases of some of our stores’ operating metrics,” Guming writes in its prospectus. The company says it still intends to grow by opening more stores and boosting the density of its store network in China.
