24 February 2026 | 11:40PM HKT Equity Research China Restaurants: Look for an improving market backdrop in 2026E; 2H25 earnings preview Following a solid earnings beat for YUMC for 4Q25 result, we expect major restaurant companies (Guming, Mixue, Haidilao) in our coverage to report better than our earlier expected earnings for 2025. In this note, we update industry forecast and provide earnings preview/updated 2026-27E earnings outlook on Guming (Buy, on CL, revise up earnings outlook and TP), MIXUE (Buy) a ...

Summary of Key Points from the Conference Call Industry Overview - The focus is on the food delivery and quick commerce sector in China, particularly regarding the investment strategies of major players like Alibaba, Guming, and Mixue [2][4]. Core Insights - **Shift to Organic Fundamentals**: The investment thesis for the China food delivery sector is increasingly based on organic growth fundamentals rather than external factors like delivery subsidies [2][2]. - **Alibaba's Investment Plans**: On January 8, Alibaba announced plans to increase investments in food delivery, exceeding market expectations, which positively impacted Guming's stock while negatively affecting Chagee [4][4]. - **Regulatory Developments**: The Chinese State Council is launching an investigation into food delivery platforms to ensure fair competition, with major companies like Meituan and JD.com pledging cooperation [4][4]. - **Same Store Sales Growth (SSSG)**: SSSG remained strong in Q4 2025, despite a reduction in overall subsidy scale, indicating resilience in consumer demand [4][4]. - **Product Innovation**: Guming demonstrated strong product innovation, launching new series that contributed to high SSSG levels, while Mixue is improving its product offerings [4][8]. Financial Metrics - **Mixue's Performance**: - Daily GMV per store increased from RMB 3.9k in 2024 to RMB 4.6k in 2025, an 18% YoY growth. - Delivery mix rose from 28% in 2024 to 40% in 2025, with expectations to normalize around 40% in 2026 [5][7]. - Average Selling Price (ASP) per cup slightly increased from RMB 6.4 to RMB 6.5, while Average Order Value (AOV) rose by 18% to RMB 13 [5][7]. - The number of items per order increased from 1.7 to 2.0, reflecting a richer product offering [7][7]. Expansion Plans - **Store Expansion**: - Mixue plans to expand its store count significantly, targeting 15,000 stores in ASEAN by 2029-2030, implying a CAGR of 25-32% [5][8]. - The estimated store count for Mixue is projected to grow from 52.7k in 2025 to 58.7k in 2026, with a focus on both domestic and international markets [6][6]. Competitive Landscape - **Market Dynamics**: The competitive landscape is evolving with brands like Guming and Mixue exploring new product categories such as coffee, bakery items, and snacks to enhance customer engagement and drive sales [4][8]. - **Delivery Order Mix**: The delivery order mix is expected to stabilize after the subsidy-driven spike, indicating a return to more sustainable growth patterns [7][7]. Conclusion - The food delivery sector in China is poised for growth driven by organic fundamentals, regulatory support, and innovative product offerings. Companies like Guming and Mixue are strategically positioning themselves for expansion both domestically and internationally, with a focus on enhancing customer experience through diverse product lines and improved service delivery.

Summary of Key Points from the Conference Call on China's Freshly Made Drink (FMD) Market Industry Overview - The conference focused on the freshly made drink (FMD) market in China, particularly milk tea shops in Zhejiang and Shanghai provinces [1][2]. Core Insights 1. **Subsidy Retreat and UE Pressure** - The expert anticipates a retreat in subsidies over the mid to long term, with ongoing pressure on unit economics (UE) due to increased delivery mix and single-cup orders. The net GMV to gross GMV ratio has decreased to approximately 60-65% from 70-75% prior to the subsidy campaign [1][10]. 2. **Store Expansion Opportunities** - Emerging small brands face challenges in scaling to over 10,000 stores amid intense competition. However, niche brands with strong momentum may achieve profitability within 6-8 months. Established brands may find further penetration in saturated regions like Zhejiang difficult, but opportunities exist for brands like Guming in Northern China and Shanghai, Mixue due to its value-for-money position, and Auntea Jenny with reduced capital expenditure requirements [1][12]. 3. **Chagee's Adjustments** - Chagee's franchisees may see improved profitability if new franchise policies are implemented. The expert noted buybacks of underperforming stores at low prices, which some franchisees have refused. High-profile marketing campaigns have been more effective than new product launches in driving short-term sales [1][13]. 4. **Sales Performance and Delivery Mix** - Sales per store for brands involved in subsidy campaigns have declined by 20-30% in December compared to August. The delivery mix has increased from 60-70% to 75-85%, while the dine-in mix has not recovered significantly. Single-cup orders have risen to 50-60% of total orders, increasing operational workload [12][10]. 5. **Profitability Challenges** - Store profitability is under pressure, with Chapanda's monthly profit dropping from approximately RMB 30,000-80,000 to around RMB 30,000 during peak seasons or breakeven in off-seasons. Regional small brands have experienced even greater declines [12][10]. 6. **Competitive Landscape** - The expert highlighted that established brands face limited opportunities for further penetration in saturated markets. However, brands like Mixue and Guming are recognized as supply-chain leaders with strong quality control and high in-house production ratios [12][11]. Additional Insights - **Coffee Contribution** - Coffee contributes about 15% to total sales in FMD stores, with pricing power challenged by competition from specialist chains. Its primary benefit is smoothing intraday sales rather than serving as a significant profit driver [14]. - **Price Target Risks for Guming and Mixue** - Guming Holdings Ltd. has a 12-month target price of HK$32.0, with risks including store network management and intensified competition. Mixue Group has a target price of HK$579, with similar risks [15][16]. This summary encapsulates the key points discussed during the conference call, providing insights into the current state and future outlook of the FMD market in China.

Summary of J.P. Morgan's Global Markets Strategy Conference Call Industry Overview - **Focus**: Asian equity markets, particularly China, Korea, and India - **Outlook for 2026**: Bullish on Asian equities with expectations of moderate to exceptional gains driven by policy support and liquidity [2][41][42] Key Points 1. Market Valuations and Positioning - Equity market valuations are currently high, with positioning in regional equities above the 80th percentile since July [2][41] - Despite high valuations, the expectation is for Asian equities to deliver gains due to supportive policies and liquidity [2][41] 2. China Market Recovery - China is in the early stages of recovery from a ~4-year downcycle, with acceptable valuations and light positioning [5][42][88] - Multiple support factors for China include: - AI adoption and power generation advantages - Innovations in robotics, biotech, semiconductors, and fintech - Consumption and property support measures - Rising shareholder returns and domestic liquidity reallocation [5][42][88][89] 3. AI Sector Insights - AI-heavy stocks (~35% of MXASJ) present a mixed risk-reward scenario, with concerns about monetization and potential commoditization [5][41] - The balance of risk and reward suggests limited incentive to increase exposure to AI stocks at this time [5][41] 4. Sector and Country Allocations - **Overweight (OW)**: Korea, Hong Kong/China, India, Consumer Staples, Materials, Financials [5][41][46] - **Neutral**: Taiwan, Technology, Industrials, Real Estate [5][41][46] - **Underweight (UW)**: ASEAN, Utilities, Energy, Healthcare [5][41][46] 5. Earnings Growth and Sector Contributions - Approximately 70% of the EPS consensus growth forecast for 2026 is driven by sectors in Korea, Taiwan, China, and India [14] - A synchronized acceleration of year-on-year growth across markets is anticipated for the first time since 2021 [14] 6. Policy Environment - Global easing policies are expected to support earnings and inflate equity valuations beyond normal levels [57][60] - The US has shifted from austerity to expansionary fiscal policies, which is expected to have a positive impact on Asian markets [58][68] 7. Long-term Themes - Key long-term themes expected to gain traction in 2026 include: - Governance improvements driving re-rating - Localization of Asian equity markets - Stablecoins as a new financial frontier [5][46] 8. Market Index Targets - End-2026 index targets for MXASJ are set at 1025 (base case), 1200 (bull case), and 800 (bear case) [7][54] 9. Risk Considerations - The potential for large gains in 2026 is viewed as substantially higher than the risk of large losses, particularly in the context of China's recovery [5][42][88] Additional Insights - The report emphasizes the importance of monitoring governance reforms in Korea and the ongoing developments in China as critical factors influencing market performance [5][41][42] - The strategic case for allocation to Asia is strengthened by recent improvements in long-term headwinds such as margins and valuations [14][41] This summary encapsulates the key insights and recommendations from J.P. Morgan's conference call, focusing on the outlook for Asian equity markets and the specific dynamics affecting China, Korea, and India.

Summary of the Conference Call on China's Bubble & Brew Sector Industry Overview - The report initiates coverage of China's "bubble & brew" sector, highlighting a shift in consumer behavior where coffee and tea have become accessible daily commodities rather than elite status symbols. The current per capita consumption in China is 22 cups of coffee per year, significantly lower than over 300 cups in the US, Japan, and South Korea [2][26] - The top 8 companies are projected to dominate 25% of total outlets by 2025, up from 10% in 2022 [2] Key Growth Areas - Low-tier cities are expected to see a compound annual growth rate (CAGR) of over 20% in store count from 2024 to 2028 [2] - The mid- to low-priced segments (under RMB 20) are anticipated to grow at a CAGR of approximately 20% [2] Company Ratings and Preferences - The report ranks companies based on their growth potential and market positioning: - **Top Picks**: Luckin Coffee (Overweight) and Guming (Overweight) - **Other Notable Mentions**: Mixue (Overweight), Nongfu (Overweight), Eastroc Beverage (Neutral), CR Beverage (Neutral), Chagee (Underweight) [2][26] Market Dynamics - Freshly made drinks (FMD) and soft drinks are expected to grow at CAGRs of 12% and 4% respectively from 2025 to 2030, while traditional alcoholic beverages like baijiu are projected to decline by 1.2% annually [5] - The aggressive expansion of coffee and tea houses is likely to impact the market share of juices, carbonates, and sweetened ready-to-drink teas, although the effect on sugar-free tea and bottled water will be minimal [5] Competitive Landscape - The report emphasizes the importance of scale, attractive pricing, supply chain efficiency, product innovation, and marketing in securing a competitive position in the market [5] - Luckin, Guming, and Mixue are expected to continue their rapid expansion, with net openings projected at 9,000, 4,800, and 3,300 stores respectively by 2026 [5] Catalysts to Watch 1. New product launches and entry into new categories (coffee, milk, finger food) [5] 2. Starbucks China aims to increase its store count to 20,000, intensifying competition in low-tier markets [5] 3. Luckin, Chagee, and Mixue's entry into the US market in 2025 [5] 4. Annual distributor reviews in November-December may lead to shifts in partnerships among beverage distributors [5] Valuation Insights - The sector experienced a significant correction, with share prices retreating 30%-60% from peak to trough, despite strong same-store sales growth (SSSG) [5] - Current valuations for Luckin, Guming, and Mixue are attractive, trading at 14-19x 2027E P/E with earnings CAGRs of 20-28% from 2024 to 2027 [5][37] Financial Metrics - The report provides detailed financial projections for key players, indicating robust revenue growth and profitability metrics for Luckin and Guming, with expected revenues of RMB 49 billion and RMB 12 billion respectively by 2025 [38] Conclusion - The bubble & brew sector in China presents significant growth opportunities, particularly in low-tier cities and affordable segments. Leading players like Luckin and Guming are well-positioned to capitalize on these trends, supported by favorable market dynamics and consumer behavior shifts [2][5][37]

Core Insights - Chagee Holdings is committed to maintaining its focus on premium products despite declining sales and profits, opting not to engage in price wars with competitors [1][6] - The company's second-quarter sales growth has slowed to 10%, down from 35% in the previous period, and adjusted operating income has dropped by 10% [3] Pricing Strategy - Chagee Holdings has chosen to stick to its pricing strategy amidst increasing competition from domestic companies like Luckin Coffee and Mixue Group, which offer heavily discounted beverages [1][3] - The company aims to build a premium brand rather than compete on price [1][6] Product Offerings - The flagship store in Hong Kong features drinks made from premium Chinese tea leaves, brewed in-store by specialists, with prices comparable to single-origin coffee at Starbucks Reserve outlets, ranging from HKD40 to HKD50 (US$5.2-6.4) [2][7] Sales Performance - The company's second-quarter sales growth has significantly slowed, resulting in a loss of nearly a quarter of its market value [3] - Despite the weak performance, Chagee remains optimistic and is not deterred by decreased competitiveness [3] Expansion Plans - Chagee opened its first U.S. store in Los Angeles in May and operates over 200 international outlets as part of a network exceeding 7,000 stores [5][8] - The company reported a 70% increase in overseas sales in the second quarter, with a focus on expanding in Southeast Asia [5][8] Future Strategy - Chagee plans to follow a development path similar to that of Starbucks, aiming to elevate the tea experience [4][8]

Summary of Global Restaurants Conference Call Industry Overview - **China's QSR Sector**: China is a critical market for global fast food expansion, with a population of 1.4 billion and a growing middle class. The QSR sector is highly competitive, with both global and local brands aggressively expanding their presence in lower-tier cities, which offer attractive unit economics and significant growth potential [1][2] Key Companies - **YUM Brands (YUMC)**: Operates approximately 15,000 KFC and Pizza Hut stores in China, accounting for about 25% of YUM's global store count. The company aims to increase its store count to 20,000 by 2026, targeting half of the Chinese population [1] - **McDonald's (MCD)**, **Starbucks (SBUX)**, and **Domino's Pizza (DPZ)**: Expected to derive around 40-50% of their net openings from China by 2025 [1] Core Insights - **Net Openings Forecast**: China is projected to account for over 75% of net openings at YUM and approximately 52% of net unit openings for MCD, SBUX, and DPZ in 2025 [1][9] - **Store Unit Economics**: Healthy store unit economics are observed, particularly in lower-tier cities, which supports favorable unit growth. However, soft consumer sentiment and pricing risks are emerging due to selective spending behavior [3][15] - **Sales Trends**: Total catering sales in China grew by 4% year-over-year in the first eight months of the year, but growth has decelerated, indicating potential risks in the market [12] Competitive Landscape - **SSSG Performance**: Brands have generally improved same-store sales growth (SSSG) year-to-date, aided by food delivery subsidies. However, there is significant divergence across brands, influenced by brand momentum and base effects [13][20] - **Pricing Strategies**: Some brands, like KFC and Luckin, have implemented price hikes, while others have been more disciplined in promotions. The impact of food delivery subsidies on pricing perception is a concern [15][20] Risks and Considerations - **Consumer Sentiment**: A relatively muted SSSG backdrop is noted, driven by soft consumer sentiment and lingering de-consolidation risks. The level of food delivery subsidies and their persistence through 2026 will be crucial in shaping transaction growth [3][12] - **Emerging Risks**: Pricing risks are re-emerging, particularly with food delivery subsidies lowering purchase prices for certain categories [15] Additional Insights - **Store Expansion Plans**: YUMC is expected to accelerate its net openings in the second half of the year compared to the first half, with multiple brands in the freshly made drink category also planning for store expansion [15] - **Market Dynamics**: The competitive landscape includes significant local players like Luckin and Mixue, which continue to expand their presence in the coffee and ready-to-drink tea segments [2][3] This summary encapsulates the key points discussed in the conference call regarding the global restaurant industry's dynamics, particularly focusing on the Chinese market and the strategies of major players within it.

Summary of Mixue Group (2097.HK) Earnings Call Company Overview - **Company**: Mixue Group - **Ticker**: 2097.HK - **Market Cap**: HK$174.8 billion / $22.4 billion - **Enterprise Value**: HK$156.0 billion / $20.0 billion - **Industry**: Freshly-made drink (FMD) sector in China and globally Key Points from the Earnings Call 1. Business Performance and Strategy - Mixue aims to solidify its leadership in the China market through increased store penetration and overseas expansion, enhancing supply chain operations, and strengthening brand awareness of Snow King IP for sustainable growth [1][16][28] - The company has seen a boost in sales volume due to food delivery subsidies in 1H25, which positively impacted store-level profitability, although management expects these subsidies to normalize [1][19] - The Lucky Cup brand is set for rapid expansion, with plans to enhance product offerings and accelerate nationwide growth in the second half of the year [1][21] 2. Overseas Market Adjustments - The decline in overseas store count in 1H25 was attributed to operational adjustments in Vietnam and Indonesia, but per store sales showed positive growth [1][23] - Expansion into new markets, including Kazakhstan and various countries in the Americas, is underway, with a focus on improving store quality and operations [1][21][23] 3. Financial Outlook - Revenue projections for 2025-2027 have been adjusted upwards by an average of 2%, reflecting solid growth in the China business and positive signs from overseas adjustments [2][27] - The company maintains a long-term gross profit margin target of approximately 30%, with diversified raw material sourcing helping to mitigate price risks [1][25] 4. Supply Chain and Operational Efficiency - Mixue is enhancing its supply chain infrastructure and digitalization efforts to support growth, with five major domestic production bases established [1][21][24] - The company plans to locally source some raw materials in overseas markets to improve supply chain efficiency [1][24] 5. Market Position and Competitive Landscape - Mixue is positioned as the largest FMD company in China and globally by store count, with a strong brand and value-for-money offerings [28] - The competitive landscape in the freshly ground coffee market is still evolving, with Mixue leveraging its supply chain for differentiated advantages [22] 6. Risks and Challenges - Key risks identified include store network management, competition, food cost inflation, food safety, and challenges in overseas expansion [28][30] 7. Financial Metrics and Projections - **Revenue Growth**: Expected to grow from Rmb 24,828.9 million in 2024 to Rmb 44,104.8 million by 2027 [6][14] - **EBITDA Growth**: Projected to increase from Rmb 5,920.9 million in 2024 to Rmb 10,252.5 million by 2027 [6][14] - **EPS Growth**: Expected to rise from Rmb 11.84 in 2024 to Rmb 20.59 by 2027 [6][14] 8. Investment Rating - The company is rated as a "Buy" with a target price of HK$570, reflecting a potential upside of 23.8% from the current price of HK$460.40 [1][16][30] Conclusion Mixue Group is strategically positioned for growth in both domestic and international markets, with a focus on enhancing operational efficiency and brand strength. The company faces challenges but has a solid plan to navigate them while capitalizing on its market leadership in the freshly-made drink sector.

Summary of Conference Call on Food Delivery Subsidy Impact on Freshly Made Drink (FMD) Players Industry Overview - The analysis focuses on the food delivery industry in China, particularly the freshly made drink (FMD) segment, with key players including Guming and Mixue [1][2]. Key Points and Arguments 1. **Intensified Competition**: The competition among food delivery platforms has intensified, with Meituan, Ele.me, and JD increasing their investments and subsidies. The expectation is that this investment phase will last longer than previous cycles [1][10]. 2. **Earnings Forecasts**: The 2025 earnings estimates for Guming and Mixue have been revised upwards due to prolonged food delivery subsidies. Guming's adjusted net profit forecast is now Rmb2.2 billion, a 9% increase, while Mixue's is Rmb5.4 billion, a 1% increase [22][23]. 3. **Impact of Subsidies**: If the food delivery subsidy continues into Q4 2025, Guming could see a GMV growth of 10%-25% per store, while Mixue could see 6%-14% growth. If subsidies are removed in 2026, Guming and Mixue could face declines of 2%-9% and 0%-4% in GMV per store, respectively [2][30]. 4. **Regulatory Environment**: There are calls from regulators for more rational competition among delivery platforms, with initiatives aimed at reducing aggressive subsidy practices. This could lead to a more stable competitive landscape in the long term [11][30]. 5. **Store Expansion Trends**: The FMD industry has seen an acceleration in store count growth, with brands like Guming and Lucky Cup expanding rapidly. However, some brands continue to experience net closures [17][20]. 6. **Price Dynamics**: The competitive landscape has led to increased price activity, with brands adjusting prices to attract customers. For instance, Starbucks and Guming have both lowered prices for certain products [18][30]. 7. **Long-term Outlook**: Despite short-term volatility due to subsidy dynamics, the long-term outlook for Mixue and Guming remains positive, supported by their supply chain advantages and brand strength [8][22]. Additional Important Insights - **Delivery Volume Growth**: The food delivery industry is expected to see significant growth in order volume, with estimates of 46%-50% year-over-year growth in Q3 and Q4 2025 [30]. - **Investment in Infrastructure**: Platforms are also investing in kitchen infrastructure to enhance service efficiency and food safety, which could further impact competition [14][16]. - **Market Sentiment**: Investor sentiment towards delivery platforms will significantly influence the near-term share prices of Mixue and Guming, with concerns about potential GMV pullbacks if subsidies are reduced [3][8]. This summary encapsulates the critical insights from the conference call regarding the food delivery subsidy impact on the FMD industry, highlighting both immediate effects and long-term implications for key players.

Investment Rating - The report maintains a "Buy" rating for Meituan, JD, Alibaba, Guming, Mixue, and Yum China, with specific target prices set for each company [19][24][25][27][28][36]. Core Insights - The food delivery industry in China has seen a significant increase in daily order volumes, reaching approximately 120 million, driven by platform subsidies and evolving consumer behavior [13][16]. - Competitive strategies among food delivery platforms have intensified, particularly between Meituan, JD, and Taobao Instant Shopping/Ele.me, with each platform adopting aggressive subsidy strategies to capture market share [7][9][12]. - Long-term market share projections indicate Meituan will hold a dominant position with 60-65% of the GTV market share, followed by Taobao Instant Shopping/Ele.me at 25-28% and JD at 10-15% [13][19]. Summary by Sections Market Dynamics - The food delivery market has expanded due to increased on-demand consumption, with daily orders growing from around 80 million to 120 million, including 30 million incremental orders attributed to subsidies [13][16]. - The expert anticipates that a portion of the new orders, particularly meal orders, may persist even after subsidies normalize [13]. Competitive Strategies - Meituan has focused on maintaining order volume and market share through differentiated offerings and targeted subsidies, particularly in higher-tier cities [7][19]. - JD has ramped up its order volume to 25 million daily orders, leveraging its delivery network and aggressive subsidy strategies [12][24]. - Taobao Instant Shopping/Ele.me has initiated campaigns to attract consumers, benefiting from traffic on the Taobao platform [9][19]. Long-term Projections - The expert presented various long-term market share scenarios, projecting Meituan's market share to remain robust while JD and Taobao Instant Shopping/Ele.me will capture smaller shares [13][19]. - The expert expects JD's loss per order to peak in Q2 2025, with gradual improvements anticipated by Q4 2025 [13].