CICC has reaffirmed its Outperform rating on GUMING (01364), setting a target price of HK$36. The valuation is based on 22.6x and 18.2x 2026/2027 price-to-earnings ratios, representing 36% upside potential, while the stock currently trades at 16.6x and 13.4x 2026/2027 P/E. Due to better-than-expected same-store revenue, the firm raised its 2026/2027 profit forecasts by 5.4% and 6.3% to 3.38 billion and 4.12 billion yuan, respectively.

The company reported its 2025 results, with revenue reaching 129 billion yuan, a 47% year-on-year increase. Net profit was 31 billion yuan, surging 110% year-on-year. Adjusted core profit, which excludes fair value changes, exchange losses, and advance dividend tax, was 28 billion yuan, up 78% year-on-year. Second-half 2025 revenue grew 52%, while adjusted core profit jumped 111% year-on-year. The outperformance was primarily driven by better-than-expected gross margin.

In 2025, the company's gross margin reached 33%, with the second-half gross margin at 34.2%, an increase of 4.4 percentage points year-on-year. This improvement benefited from optimizations in transportation planning and recipes, as well as a reduction in subsidies for franchisees. The sales expense ratio remained stable at 5.4%, while management and R&D expense ratios decreased by 0.7 and 0.9 percentage points, respectively, due to economies of scale. The full-year adjusted core net profit margin reached 21.7%, demonstrating the advantages of its supply chain.

To address the risk of a decline in food delivery subsidies, the company proactively increased delivery prices by 3-4 yuan in 2025 to protect franchisees' actual collection rates. After the subsidy reduction in the fourth quarter of 2025, franchisees' per-store profits continued to rise, and the current delivery collection rate has returned to a healthy level.

Same-store sales in the first quarter of 2026 may achieve impressive double-digit growth. Coffee sales are expected to contribute additional growth throughout the first three quarters, while the upgrade to sixth-generation stores is set to boost per-store performance. The impact of last year's incremental delivery subsidies was around 5% and is considered limited. The firm expects the company's full-year same-store performance to be well-supported.

GUMING is likely to maintain its 2025 store expansion pace, actively increasing density in already entered provinces, which is expected to further strengthen its competitiveness in lower-tier markets.