F-1: Chagee Holdings Files for U.S. IPO, Aiming to Modernize Tea Drinking

Chagee Holdings Limited, a leading premium tea drinks brand in China, has filed for an initial public offering in the U.S., seeking to expand its teahouse network and further innovate the tea-drinking experience.

Summary

• Chagee Holdings Limited has filed for an IPO in the U.S. to expand its premium tea drinks business.
• As of December 31, 2024, Chagee's network included 6,440 teahouses, with 6,284 in China and 156 overseas.
• In 2023 and 2024, Chagee's total GMV reached RMB10.8 billion and RMB29.5 billion, respectively.
• The company achieved net income of RMB802.6 million in 2023 and RMB2,514.6 million in 2024.
• The IPO aims to raise funds for expanding the teahouse network, product development, building an overseas supply chain, and investing in technology.
• The company faces risks related to competition, managing growth, and regulatory uncertainties in China.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for Chagee Holdings, highlighting its growth, market leadership, and financial performance. While acknowledging risks, the overall tone is optimistic and confident in the company's future prospects.

Positives

• Chagee is a leading premium tea drinks brand with a large and growing network of teahouses.
• The company has demonstrated strong financial performance with significant revenue and profit growth.
• Chagee is committed to innovation and using technology to enhance the tea-drinking experience.
• The company has a well-managed franchise model and is expanding its presence overseas.

Negatives

• The company faces intense competition in the freshly-made tea drinks market.
• Chagee's operating results are closely tied to the success of its franchise partners.
• The company is subject to evolving consumer preferences and tastes.
• The company faces legal and operational risks and uncertainties related to being based in and having a significant portion of its operations in China.
• The company may rely on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements it may have, and any limitation on the ability of its PRC subsidiaries to make payments to it could have a material and adverse effect on its ability to conduct its business.

Risks

• The company's limited operating history may not be indicative of future growth or financial results.
• The company may not be successful in expanding its teahouse network.
• The company may face challenges in managing its supply chain and ensuring product quality.
• The company is subject to evolving policies, laws and regulations in China.
• The company may rely on dividends and other distributions on equity paid by its PRC subsidiaries to fund any cash and financing requirements it may have.
• Trading in the company's securities may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB determines that it is unable to inspect or investigate completely the company's auditor.

Future Outlook

The company intends to use the net proceeds from the offering for expanding the network of teahouses in China and overseas, developing and innovating new products, building overseas supply chain network, investment in technology to support business development and operations, and for general corporate and working capital purposes.

Management Comments

• With every cup of our tea, we aspire to foster a global connection of people and cultures.
• To modernize the tea-drinking experience through technology and innovation.
• Customer First is the foundational philosophy of how we make decisions and run our business.
• Caring for Partners is the core value that defines how we interact with consumers, franchise partners, suppliers, and employees.
• Quality, Health, and Convenience is the guiding principle of how we make our products.

Industry Context

Chinas freshly-made tea drinks market is growing rapidly, with the premium segment experiencing faster growth due to consumer demands for higher-quality products and health benefits. The global tea drinks market is also projected to grow significantly, with freshly-made tea drinks gaining popularity across overseas markets.

Comparison to Industry Standards

• Chagee's average monthly GMV per teahouse in China increased by 188.2% from RMB177.5 thousand in 2022 to RMB511.7 thousand in 2024, which stood out as the highest among all freshly-made tea drinks brands with over 1,000 stores in China, according to iResearch.
• In 2024, the company's logistics costs accounted for less than one percent of its total GMV generated in China and overseas, and its inventory turnover days were approximately 5.3 days, representing the lowest figure among all freshly-made tea drinks brands with over 1,000 stores in China, according to iResearch.

Related Party Transactions

• The company held minority interests in some of its franchised teahouses, to which it provided products and services under franchise arrangements.
• In the year ended December 31, 2022, the company extended a loan of RMB1.0 million to Mr. Junjie Zhang, its founder, chairman of the board, and chief executive officer, which had been fully repaid as of December 31, 2023.
• In the year ended December 31, 2023, the company extended loans of RMB20.0 million, RMB7.0 million and RMB5.0 million to Mr. Junjie Zhang, Mr. Xianggui Peng and Mr. Peibang Gong, respectively.
• In the year ended December 31, 2022, the company extended a loan of RMB2.0 million to Jiangmen Pengjiang District Yu Sheng Beverage Plant, a company ultimately controlled by a supervisory board member of Beijing Chagee, which had been fully repaid as of December 31, 2022.
• In 2023, an aggregate of 1,046,761 Class A and 1,610,888 Class B ordinary shares beneficially owned by Mr. Junjie Zhang, Mr. Xianggui Peng and Mr. Peibang Gong, who are the company's employees, were exchanged at a premium for Series B shares.
• In connection with the Restructuring, Beijing Chagee extended bridge loans to certain Series A and Series B preferred shareholders in 2023.

Stakeholder Impact

• Shareholders: Potential for capital appreciation and dividends (though not expected in the near future).
• Employees: Continued employment opportunities and potential for equity-based compensation.
• Customers: Access to high-quality, innovative tea drinks and an enhanced tea-drinking experience.
• Franchise Partners: Continued support and resources for operating successful teahouses.
• Suppliers: Continued business relationships and potential for growth.

Next Steps

• The company intends to expand its teahouse network in China and overseas.
• The company will continue to develop and innovate new products.
• The company plans to build an overseas supply chain network.
• The company will invest in technology to support business development and operations.

Key Dates

Keywords

IPO, Chagee, tea drinks, franchise, China, premium, freshly-made, market, expansion, technology