Chinese Bubble Tea Company Experiences Sharp Drop on Debut Day at Hong Kong Stock Exchange

Baicha Baidao Opens Store in Seoul
Shares Drop 37% on First Day of Trading on Hong Kong Stock Exchange on 23rd

Baicha Baidao, the third-largest bubble tea franchise company in China, plummeted on its first day of listing on the Hong Kong Stock Exchange.

On the 23rd, Sichuan Baicha Baidao, which started trading on the Hong Kong Stock Exchange, fell more than 37% intraday. The company's shares were priced at an IPO offering price of $17.50 per share but dropped to as low as $10.94 that morning.

[Image source=Yonhap News]

Through the listing, the company raised $331 million (approximately 455.8863 billion KRW) and was considered the largest company to list in Hong Kong since November last year. The company, whose name means "100 kinds of tea," started in 2008 with a small 20㎡ store near a middle school in Chengdu. It quickly expanded its business with a low-margin, high-volume strategy, selling a 0.5-liter bubble tea for 10 yuan (about 1,900 KRW).

Last year's sales reached 5.7 billion yuan, a 56% increase compared to the previous year. It has more than 8,000 stores across China and opened its first overseas store outside China in Seoul last January.

Experts attribute the stock price decline on the first trading day to intense competition in the Chinese tea market and economic uncertainties. Ada Li, Senior Analyst for Asia-Pacific Consumer Goods at Bloomberg Intelligence, said, "Chinese tea specialty stores face intense competition with increasing pressure on selling prices and rising input costs," adding, "Chinese consumers are tightening their wallets amid economic uncertainty and the ongoing real estate crisis."

In fact, bubble tea shops have been proliferating rapidly in China recently. Bubble tea specialty chain Mixuebingcheng operates 32,000 stores domestically and about 4,000 stores in 11 overseas countries. The industry's second-largest bubble tea company, Guming, and the fourth-largest, Antigenie, have also applied for IPOs on the Hong Kong Stock Exchange.

However, the situation in the stock market is not smooth. Nayuki, a premium brand with 1,800 stores that went public three years ago, suffered significant damage from low-price competition. In particular, when it lowered bubble tea prices, its stock price fell by as much as 90% from its peak.