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

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 reach and modernize the tea-drinking experience worldwide.

Summary

• Chagee Holdings Limited, a Cayman Islands-based holding company, is pursuing an IPO to list its American Depositary Shares (ADSs) on the Nasdaq Global Select Market under the symbol CHA.
• The company aims to raise capital for expanding its teahouse network, brand building, technology investment, product innovation, and building an overseas supply chain.
• Chagee operates primarily in the freshly-made tea drinks market, with a network of 6,440 teahouses as of December 31, 2024, including 6,284 in China and 156 overseas.
• The initial public offering price is expected to be between US$26.0 and US$28.0 per ADS, with 14,683,991 ADSs being offered.
• Four independent investors have shown non-binding interest in purchasing up to US$205.0 million worth of ADSs in the offering.
• The company's founder, Junjie Zhang, will retain significant control with 89.0% of the total voting power after the offering.
• Chagee's total GMV generated in China and overseas reached RMB29.5 billion in 2024, with net revenues of RMB12.4 billion and a net income of RMB2.5 billion.
• The company faces risks related to operating in China, competition, managing growth, and evolving consumer preferences.

Sentiment

Score: 7

Explanation: The document presents a generally positive outlook for Chagee, highlighting its growth, market position, and financial performance. However, it also acknowledges several risks and challenges, which tempers the overall sentiment.

Positives

• Chagee is the largest premium freshly-made tea drinks brand in China by store count.
• The company has experienced rapid growth in GMV and net revenues.
• Chagee has a strong social influence index ranking in China.
• The company has a universally appealing core menu focused on tea lattes.
• Chagee is committed to operational efficiency and excellence through technology.
• The company has a well-managed teahouse network with strong operating results.
• The company achieved a net income of RMB2.5 billion in 2024, a 213.3% increase from 2023.
• The company recorded a working capital surplus of RMB3.1 billion as of December 31, 2024.

Negatives

• The company has a limited operating history.
• The company operates in a highly competitive and rapidly evolving market.
• The company has limited control over franchise partners' operations.
• The company is subject to evolving consumer preferences and tastes.
• The company may face challenges in expanding its teahouse network.
• The company may not be successful in operating company-owned and managed franchised teahouses effectively.
• The company faces the risk of fluctuations in the cost, availability and quality of its raw materials.
• The company may be unable to prevent others from unauthorized use of its intellectual property.
• The company may be subject to liability for placing advertisements with content that is deemed inappropriate or misleading under PRC laws.
• The company may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt its business.
• The company may be subject to significant liability claims or complaints from consumers, or adverse publicity involving its products, its services or its teahouses.
• The company's business is subject to seasonal fluctuations and unexpected interruptions.
• The company may be unable to detect, deter and prevent all instances of fraud or other misconduct committed by its franchise partners, employees, consumers, suppliers or other third parties.
• The company has limited insurance coverage for its operations.
• The company faces risks related to natural disasters, health epidemics and other outbreaks, which could significantly disrupt its business, financial condition and results of operations.

Risks

• The company's limited operating history may not be indicative of future results.
• The company faces intense competition in the freshly-made tea drinks market.
• The company's growth strategies are closely tied to the success of franchise partners.
• The company is subject to evolving consumer preferences and tastes.
• The company may not be successful in expanding its teahouse network.
• The company's operations in China are subject to complex and evolving policies, laws, and regulations.
• The PRC government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers.
• It may be challenging to effect service of legal process, enforce foreign judgments, or bring actions in China against the company or its management.
• 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.
• The custodians or authorized users of the company's controlling non-tangible assets, including chops and seals, may fail to fulfill their responsibilities, or misappropriate or misuse these assets.
• Transferring funds to the company's PRC subsidiaries, whether as loans or increases in registered capital, requires approvals, registrations, or filings with relevant PRC regulatory authorities.
• An active trading market for the company's ordinary shares or the ADSs may not develop, and the trading price for the ADSs may fluctuate significantly.
• The trading price of the ADSs is likely to be volatile, which could result in substantial losses to investors.
• Substantial future sales or perceived potential sales of ADSs in the public market could cause the price of ADSs to decline.
• Because the company does not expect to pay dividends in the foreseeable future after this offering, you must rely on a price appreciation of the ADSs for a return on your investment.
• Because the initial public offering price is substantially higher than the pro forma net tangible book value per share, you will experience immediate and substantial dilution.
• Forum selection provisions in the company's post-offering memorandum and articles of association could limit the ability of holders of the company's Class A ordinary shares, ADSs, or other securities to obtain a favorable judicial forum for disputes with the company, its directors and officers, the depositary bank, and potentially others.
• 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, and as a result, U.S. national securities exchanges, such as Nasdaq, may determine to delist the company's securities.
• The company has identified material weaknesses in its internal control over financial reporting.
• The company may be classified as a PRC resident enterprise for PRC enterprise income tax purposes, which could result in unfavorable tax consequences to the company and its non-PRC shareholders and ordinary shareholders and have a material adverse effect on its results of operations and the value of your investment.
• The company faces uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
• The growth and profitability of the company's business depend on the level of consumer demand and discretionary spending.
• Unexpected termination of leases, failure to renew the lease of existing premises or to renew such leases at acceptable terms could materially and adversely affect the company's business.
• The company may undertake strategic partnerships which may not be successful.
• The company may be unable to detect, deter and prevent all instances of fraud or other misconduct committed by its franchise partners, employees, consumers, suppliers or other third parties.
• The company has historically been a target of unauthorized use and imitation of its brand names, trademarks, copyrights and other intellectual properties.
• The company has significant working capital requirements and experienced working capital deficits in the early stage of its operations.
• Expanding the company's teahouse network, building a well-known brand and accumulating a large and continuously growing consumer base is costly and time-consuming.
• If the company fails to manage its inventory effectively, its results of operations, financial condition and liquidity may be materially and adversely affected.
• The company may experience significant liability claims or complaints from consumers, or adverse publicity involving its products, its services or its teahouses.
• Overall tightening of the labor market, increases in labor costs or any possible labor unrest may adversely affect the company's business and results of operations.
• The company may be subject to additional contributions of social insurance and housing fund and late payments and fines imposed by relevant governmental authorities.
• Non-compliance with labor-related laws and regulations of the PRC may have an adverse impact on the company's financial condition and results of operation.
• The company has granted, and may continue to grant share options and other forms of share-based incentive awards, which have resulted in and may continue to result in significant share based compensation expenses.
• The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and they may not be able to exercise their right to direct the voting of the underlying ordinary shares represented by your ADSs.
• You may not receive dividends or other distributions on our ordinary shares and the ADS holders may not receive any value for them, if it is illegal or impractical to make them available to the ADS holders.
• You may experience dilution of your holdings due to the inability to participate in rights offerings.
• You must rely on the judgment of our management as to the use of the net proceeds from this offering, and such use may not produce income or increase our ADS price.
• You may be subject to limitations on the transfer of your ADSs.
• Our shareholders may face difficulties in protecting their interests, and the ability to protect their rights through U.S. courts may be limited because we are incorporated under Cayman Islands law and our operations are based in emerging markets.
• Our post-offering memorandum and articles of association that will become effective immediately prior to completion of this offering contain anti-takeover provisions that could have a material adverse effect on the rights of holders of our ordinary shares and the ADSs.
• We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
• ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.

Future Outlook

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

The announcement comes amid a growing global interest in tea drinks, particularly freshly-made tea, and reflects a trend of Chinese companies seeking international capital to fuel expansion. Chagee's focus on technology and a managed franchise model aligns with industry trends towards digitalization and efficient scaling.

Comparison to Industry Standards

• Chagee's store network is the largest among premium freshly-made tea drinks brands in China, surpassing competitors like Heytea and Nayuki.
• The company's average monthly GMV per teahouse in China of RMB511.7 thousand in 2024 is among the highest in the industry.
• Chagee's inventory turnover days of approximately 5.3 days is the lowest among all freshly-made tea drinks brands with over 1,000 stores in China, indicating efficient supply chain management.
• The company's focus on tea lattes as a core product offering differentiates it from competitors that primarily focus on fruit teas.

Corporate Governance

Related Party Transactions

• The company has engaged in transactions with related parties, including sales of products and services to franchised teahouses with related party ownership.
• The company has extended loans to related parties, including executive officers and shareholders.
• The company has exchanged ordinary shares for preferred shares with related parties, resulting in share-based compensation expenses.

Stakeholder Impact

• Shareholders: Potential for increased value through company growth, but also risk of dilution and market volatility.
• Employees: Potential for career advancement and equity ownership, but also risk of job security due to market competition.
• Franchise Partners: Opportunity for business growth and support, but also subject to company standards and potential conflicts of interest.
• Customers: Access to high-quality tea drinks and a modern tea-drinking experience.
• Suppliers: Potential for increased business volume, but also subject to company's procurement policies.

Next Steps

• The company intends to list its ADSs on the Nasdaq Global Select Market under the symbol CHA.
• The company will use the net proceeds from the offering for various growth initiatives.

Key Dates

Keywords

Chagee, IPO, ADS, tea drinks, freshly-made tea, China, franchise, premium tea, investment, Nasdaq