Investment Rating - The report initiates coverage with a "Buy" rating for the company, targeting a price of HKD 13.58, representing a potential upside of 44.8% from the current price of HKD 9.38 [4]. Core Insights - The company is a leading brand in the mid-range ready-to-drink tea market, achieving stable revenue through a franchise model, with approximately 95% of revenue derived from sales to franchisees [1][2]. - The company has maintained double-digit growth in revenue and net profit from 2021 to 2023, with plans to expand its store count significantly in lower-tier cities as first-tier cities become saturated [1][2]. - The Chinese ready-to-drink tea market is projected to grow significantly, with a compound annual growth rate (CAGR) of 25.2% from 2018 to 2023, indicating strong potential for further expansion [2]. Summary by Sections Business Model - The company primarily operates through a franchise model, with over 99% of revenue coming from franchise sales, which provides a stable income source and reduces operational risks [29][35]. - The franchise model allows for rapid national expansion, with over 8,400 stores established across 31 provinces as of June 30, 2024 [35][59]. Market Position - The company holds a 6.8% market share in the Chinese ready-to-drink tea market, ranking third by retail sales in 2023 [2][59]. - The competitive landscape is intensifying, with over 3,000 brands competing and a market concentration (CR5) of 40.2% [2]. Product and Brand Strategy - The company emphasizes product innovation and brand building, with a product matrix that includes classic and seasonal offerings, enhancing market appeal [3][9]. - The introduction of a coffee sub-brand "Kahui" and expansion into Southeast Asian markets are part of the company's growth strategy [3][54]. Financial Projections - Revenue forecasts for 2024, 2025, and 2026 are projected at RMB 48.33 billion, RMB 53.51 billion, and RMB 58.33 billion, respectively, with corresponding year-over-year growth rates of -15.3%, 10.7%, and 9.0% [4]. - Adjusted net profits are expected to be RMB 10.42 billion, RMB 11.71 billion, and RMB 12.95 billion for the same years, with year-over-year changes of -16.4%, 12.3%, and 10.6% [4]. Supply Chain and Operations - The company has established a robust supply chain system, ensuring product quality and operational efficiency through a nationwide logistics network [48]. - Approximately 90% of stores receive deliveries the next day, with a digital supply chain management system in place to optimize inventory and logistics [48]. Membership and Customer Engagement - The membership program has grown rapidly, with over 130 million registered members as of October 31, 2024, enhancing customer loyalty and engagement [24][27]. - The program includes a points system and user benefits, fostering a strong community atmosphere among consumers [27][28].