To The Moon

After two consecutive years of a bull market in U.S. stocks, many analysts are warning that valuations are now too high. This year, any news could trigger a major market correction driven by mean reversion.

U.S. stocks plunged Friday as inflation fears rose. According to the University of Michigan, consumer inflation expectations for the next 5-10 years surged to 3.5%—the highest since 1995.

Fed minutes flagged concerns over tariffs fueling inflation, while $Wal-Mart(WMT)$ soft outlook shook investor confidence. Technically, the Nasdaq and S&P 500 formed a double top, with further gains hinging on next week’s Nvidia earnings.

While the recent volatility in U.S. stocks is concerning, the surge in Chinese stocks is even more so. Most investors are still on the sidelines, given the historically poor performance of Chinese stocks over the years. Despite the recent rally and relatively low valuations, many fear getting trapped in another downturn.

Beyond tech stocks, China’s leading tea beverage brand, Mixue Group, is set to go public next week.

With high profit margins and a low valuation, would you consider subscribing to its IPO?

Franchise Model Drives High Profitability

According to Mixue Bingcheng’s prospectus, its net profit margin for the first nine months of 2024 was 18.7%, and its operating profit margin was 24.6%—both higher than $Starbucks(SBUX)$ and $Luckin Coffee Inc.(LKNCY)$.

However, it’s important to note that Mixue primarily operates in the tea beverage segment and relies heavily on franchise stores, which differs from Starbucks and Luckin’s business models, contributing to its higher profitability.

Some argue that the IPO price of HKD 202.5 per share is too expensive compared to the price of its drinks. However, based on its HKD 76.355 billion valuation at IPO, Mixue’s P/E ratio is 15.9x, which is lower than $CHABAIDAO(02555)$ ’s 16x and $GUMING(01364)$’s 18x, making it relatively reasonable.

As of September 30, 2024, Mixue Bingcheng had approximately 4,800 stores outside mainland China, forming a rapidly expanding global network. During the reporting periods, Indonesia and Vietnam accounted for 70% or more of its overseas revenue.

Would you subscribe to $MIXUEGROUP(02097)$ IPO?

Have you ever tried Mixue’s drinks?

Is Mixue popular in Southeast Asia and Australia?

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