CICC released a research report maintaining its earnings forecasts for CHABAIDAO (02555) for FY25/26. The stock is currently trading at 14x/11x FY25/26 P/E. The firm maintains its target price of HK$12, corresponding to 19x/15x FY25/26 P/E with 36% upside potential, and reiterates its Outperform rating.
The company announced its 1H25 results with revenue of RMB 2.5 billion (+4.3% YoY), net profit attributable to shareholders of RMB 330 million (+37.5% YoY), and adjusted net profit of RMB 340 million, which essentially met the firm's expectations.
CICC's key observations are as follows:
**Strong Same-Store Performance Drives Steady Revenue Growth in 1H25**
The company achieved steady revenue growth of +4.3% YoY in 1H25. In terms of same-store performance, benefiting from increased delivery subsidies starting in May and store network optimization, 2Q single-store daily average GMV reached a new high in recent year, up approximately 15% QoQ from 1Q.
Regarding store count, 1H25 saw a net addition of 59 stores to 8,444 total stores (average operating stores up 4% YoY). Among these, stores in tier-four and below cities grew 9% YoY in the first half, while stores in other tier cities contracted, mainly due to the company's focus on densification opportunities in lower-tier markets through regional incentive policies to accelerate coverage.
On the product front, the company transformed its product development from supply chain-oriented to demand-oriented, launching 55 new products in the first half focusing on core categories such as fresh fruit tea and fresh milk tea, receiving positive market feedback. Meanwhile, franchisee operating conditions improved in the first half, with average payback periods shortened by 1-2 months YoY. Overall, the company's 1H25 operational direction remained steadily upward.
**Gross Margin Improvement with Precise Marketing Enhancing Conversion Rates**
Benefiting from optimized raw material structure, improved supply chain efficiency, and refined cost management, the company's gross margin increased by 0.9ppt YoY to 32.6% in 1H25, achieving steady improvement.
Sales expense ratio increased by 1.6ppt YoY to 6.0%, mainly due to increased marketing investment amid intensified industry competition. The marketing strategy shifted from brand image building to precise marketing targeting specific demographics and channels, driving improved marketing conversion rates. Management expense ratio increased by 1.2ppt YoY to 10.3%, primarily due to increased employee compensation and third-party consulting fees. Overall, net profit margin increased by 3.1ppt YoY to 13.0%.
**Continued Improvement Expected in Second Half, Significant Product R&D Results, Overseas Expansion Expected to Enhance Long-term Growth**
Medium to long-term delivery subsidies are expected to cultivate broader consumer groups and delivery consumption habits, enhancing user stickiness. Against the backdrop of subsidy reduction, the company's single-store performance maintained healthy YoY growth in August.
In the long term, the company will continue to focus on launching high value-for-money products, improving supply chain efficiency, and strengthening digital operations to enhance store operational resilience and consumer experience. Meanwhile, overseas development is progressing steadily, with the firm expecting total store count to reach approximately 30 stores for the full year, potentially opening up long-term growth space.
The firm expects the company's net store openings in the second half to show significant sequential improvement. On the profit side, the firm expects gross margin to continue its upward trend, with overall adjusted core net profit margin expected to improve.