Core Viewpoint - Haitong International forecasts that Hu Shang A Yi (02589) will achieve revenues of 4.22 billion, 4.92 billion, and 5.63 billion CNY in 2025, 2026, and 2027 respectively, with adjusted net profits of 540 million, 620 million, and 710 million CNY for the same years, assigning a target price of 105 HKD based on a 16X PE valuation for 2026, and initiating coverage with an outperform rating [1] Group 1: Company Overview - Hu Shang A Yi is a leading fresh beverage company in China, expected to surpass 10,000 stores by the end of 2025, becoming the third fresh tea beverage brand in the country to achieve this milestone [2] - The company is leveraging a "one body, two wings" business model, focusing on the Hu Shang A Yi brand in China while also developing the Cha Pu Bu brand and expanding internationally [2][3] Group 2: Business Strategy - The company has successfully expanded its store network in northern markets by adopting a franchise model, sharing resources, and incentivizing external talent, which has contributed to its rapid growth [2] - The brand's marketing strategy emphasizes health and wellness, targeting female consumers through branding and product offerings, which has helped in customer acquisition [2] - The low-threshold store model and inclusive franchise system have allowed for sustainable expansion, with new franchisees expected to reinvest profits into opening additional stores [2] Group 3: Financial Forecast - The company is projected to open over 2,000 new Hu Shang A Yi stores and more than 1,000 new Cha Pu Bu stores by 2026, indicating a stable growth trajectory [4] - The company anticipates that same-store sales will remain stable in 2026, despite a high base from delivery subsidies in 2025, by enhancing coffee offerings and increasing marketing efforts [4]

Core Viewpoint - Haitong International expects Hu Shang Ayi (02589) to achieve revenues of 4.22 billion, 4.92 billion, and 5.63 billion CNY for the years 2025-2027, with adjusted net profits of 540 million, 620 million, and 710 million CNY respectively, assigning a target price of 105 HKD based on a 16X PE valuation for 2026, and initiating coverage with an outperform rating [1] Group 1: Company Overview - Hu Shang Ayi is a leading fresh beverage company in China, projected to surpass 10,000 stores by the end of 2025, becoming the third fresh tea beverage brand in the country to achieve this milestone [2] - The company is leveraging its scale and channel advantages to strengthen its position in the market, as the window for new brands to rapidly scale has closed, leading to a landscape where strong brands will dominate [2] Group 2: Business Strategy - The company operates with a "one body, two wings" business model, focusing on Hu Shang Ayi in China and the Tea Waterfall brand along with overseas markets as growth drivers [3] - Hu Shang Ayi's rapid expansion is attributed to its effective management philosophy, which emphasizes mutual benefits and resource sharing, as well as a focus on health-oriented products targeting specific customer demographics [3] - The company has established a low-threshold store model and an inclusive franchise system, which allows for sustainable expansion through new franchisee investments and improved single-store profitability [3] Group 3: Growth Engines - The Tea Waterfall brand is designed for lower-tier markets, creating a distinct identity while benefiting from the main brand's resources, while overseas expansion targets developed markets with successful store openings [4] - Both channel penetration and international expansion are seen as correct strategic directions for the brand, with significant potential for growth as these initiatives are still in their early stages [4] Group 4: Financial Forecast - The company is expected to stabilize its market share with over 2,000 new Hu Shang Ayi stores and over 1,000 new Tea Waterfall stores by 2026, with same-store sales expected to remain stable despite high bases due to delivery subsidies in 2025 [5]

Financial Performance - In the first half of 2025, the company achieved operating revenue of 1.818 billion yuan, a year-on-year increase of 9.7% [2] - Gross profit reached 572 million yuan, up 10.4% year-on-year [2] - Net profit for the period was 203 million yuan, reflecting a year-on-year growth of 20.9% [2] - Adjusted net profit stood at 244 million yuan, with a year-on-year increase of 14.0% [2] - Basic earnings per share were 1.97 yuan, representing a year-on-year growth of 19.4% [2] - The company announced a mid-term dividend plan, proposing a distribution of approximately 71.12 million yuan [2] Market Strategy - The company has successfully implemented a down-market strategy, with 51.1% of its stores located in third-tier and below cities [3] - As of June 30, 2025, the total number of stores reached 9,436, an increase of nearly 1,000 stores year-on-year [3] - The down-market strategy has allowed the company to achieve stable growth despite industry uncertainties [3] Supply Chain and Franchise Model - The company has established a robust supply chain network, including 13 logistics bases, 4 equipment warehouses, 7 fresh produce warehouses, and 14 cold chain warehouses [4] - The supply chain supports the growing store network and ensures product quality and service stability [4] - The company has 5,706 franchisees operating 9,412 franchise stores, benefiting from a standardized and digitalized management system [4] - As of June 30, 2025, the company had 131.4 million registered members on its WeChat mini-program, with an average quarterly active membership of 15.8 million and a quarterly repurchase rate of 40.6% [4] Brand and Product Innovation - The company has developed a multi-brand strategy, including three main brands to enhance market reach and risk resilience [5][6] - The main brand "沪上阿姨" targets consumers in third-tier and below cities with cost-effective beverages, while "茶瀑布" focuses on a lower price range [5] - The introduction of "沪咖" in 2022 marks the company's entry into the coffee market, catering to diverse consumer needs [6] - The company launched 136 new products in the first half of 2025, maintaining a rapid pace of innovation [6] Market Recognition - The company has been included in the Hang Seng Composite Index, indicating strong market recognition of its business performance and value [7] - The solid performance in the semi-annual report further strengthens the company's position among leading players in the new tea beverage industry [7]