Who's The Winner Of Wine-Coffee Latte?

Each cup of "Sauce Fragrant Latte" contains 53 degrees of Maotai.

Today's collaboration between $Kweichow Moutai Co.,Ltd.(600519)$ and $Luckin Coffee Inc.(LKNCY)$ is truly making waves! It's even dominating the top trending topics.

Just like previous partnership between Heytea and FENDI (a brand under $LVMH-Moet Hennessy Louis Vuitton(LVMUY)$ ), this cross-brand collaboration has brought joy to both consumers and investors.

From an investment perspective, this is undoubtedly a win-win partnership.

1. Although Maotai's performance on the A-share market today isn't strong, it can significantly expand its influence among the younger demographic. Many Maotai consumers might have something to say: Maotai isn't their first choice. However, nurturing the next generation of consumers is always a good thing!

2. While the U.S. stock market is closed today, and we can't directly gauge the impact on the stock price of Luckin Coffee ($LKNCY$), it might be the biggest beneficiary of this collaboration. The Maotai collaboration isn't just about marketing; it's also a form of brand endorsement. Since the falsification incident, Luckin Coffee has been lacking investor trust. If Maotai is willing to endorse it, then the significance of boosting Luckin's brand recognition and value is substantial.

3. The increase in sales will undoubtedly benefit Luckin Coffee in the short term. Although it's unclear whether the revenue will be shared based on sales volume (usually not the case), it will certainly boost Luckin's performance.

4. This collaboration strongly counters market doubts about Luckin Coffee, such as being "outperformed by Cotti Coffee" or "lacking Starbucks' prospects." In fact, Luckin Coffee, including surpassing Starbucks in terms of orders and sales in the Chinese market, while KFC Coffee's cutthroat competition is not a sustainable long-term strategy.

Lastly, let's revisit my valuation perspective on Luckin, as discussed in the Q2 financial analysis "Luckin's Latest Target Price: $47!"

• Starbucks is expected to have an EV/EBITDA ratio of 19.8 times by the end of 2023 and 16.7 times by 2024.

• Interestingly, Luckin Coffee's trailing twelve-month EV/EBITDA ratio also stands at 19.8 times. However, considering its current rapid growth in revenue and profits compared to Starbucks, if we apply Starbucks' valuation framework, Luckin Coffee's valuation should at least reflect its EBITDA growth relative to Starbucks' EBITDA growth.

• Looking ahead to 2024, with an EV/EBITDA ratio of around 18 times, and assuming a modest 20% revenue growth and an EBITDA profit margin of approximately 18% based on Luckin Coffee's current revenue level, the per-share price could reach $47, still offering a 42% upside potential.