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

Chagee Holdings, a leading premium tea drinks brand in China, has filed for an initial public offering in the US, seeking to expand its reach and modernize the tea-drinking experience worldwide.

Summary

• Chagee Holdings Limited, a Cayman Islands-based holding company, is planning an initial public offering (IPO) of American Depositary Shares (ADS) representing Class A ordinary shares.
• The company aims to list its ADSs on the Nasdaq Global Select Market under the symbol CHA.
• Chagee is a premium tea drinks brand with a large network of 6,440 teahouses as of December 31, 2024, including 6,284 in China and 156 overseas.
• The company's total GMV in China and overseas reached RMB29.5 billion in 2024, with a net income of RMB2,514.6 million.
• The IPO is subject to regulatory approvals, including cybersecurity review and filings with the China Securities Regulatory Commission (CSRC).
• The company faces risks related to operating in China, including regulatory oversight and potential limitations on foreign investment.
• The IPO price is expected to be between US$ and US$ per ADS.
• The company intends to use the net proceeds from the offering for expanding the network of teahouses, developing new products, building overseas supply chain network, investment in technology and for general corporate and working capital purposes.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for Chagee, highlighting its strong growth, market leadership, and commitment to innovation. While risks are acknowledged, the overall tone suggests confidence in the company's future prospects.

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 income.
• Chagee has a strong brand reputation and social influence.
• The company has a managed franchise model that focuses on effective, centralized management of its franchise network.
• The company is committed to operational efficiency and excellence, which is underpinned by its cutting-edge tea tech initiatives.

Negatives

• The company faces risks related to operating in China, including regulatory oversight and potential limitations on foreign investment.
• The company's limited operating history may not be indicative of future growth or financial results.
• The company operates in a highly competitive and rapidly evolving market.
• The company's operating results and growth strategies are closely tied to the success of its franchise partners and it has limited control with respect to their operations.
• 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 PRC government exerts substantial influence over the manner in which the company conducts its business operations.
• Uncertainties exist with respect to how the PRC Foreign Investment Law may impact the viability of the company's current corporate structure and operations.
• The PRC government may exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers, which could significantly limit or completely hinder the company's ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless.
• It may be challenging to effect service of legal process, enforce foreign judgments or bring actions in China against the company or its management named in the prospectus based on foreign laws.
• 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 may not be successful in expanding its teahouse network.
• The company may not be successful in operating the company-owned and franchised teahouses managed by it within its teahouse network effectively.
• The company faces the risk of fluctuations in the cost, availability and quality of its raw materials, which could adversely affect its results of operations.
• The company's experience in expansion into overseas markets has been limited and may present increased risks due to lower awareness of its brand, its unfamiliarity with those markets and other factors.

Future Outlook

The company plans to expand its teahouse network, develop new products, build an overseas supply chain network, and invest in technology to support business development and operations.

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 reflects the growing trend of Chinese companies seeking international capital through US IPOs, particularly in the consumer and retail sectors. It also highlights the increasing popularity of premium tea drinks and the modernization of the tea-drinking experience.

Comparison to Industry Standards

• Chagee's average monthly GMV per teahouse in China was 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.
• The company's logistics costs accounted for less than one percent of its total GMV generated in China and overseas in 2024, representing a highly efficient logistics system.
• The company's inventory turnover days were approximately 5.3 days in 2024, 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, which amounted to RMB3.4 million, RMB2.5 million and RMB18.8 million (US$2.6 million) for the years ended December 31, 2022, 2023 and 2024, respectively.
• 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 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 our 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, namely RMB117.0 million to Qingdao Qiushi Chenxing L.P, RMB50.0 million to Shanghai Fosun High-Tech (Group) Co., Ltd. and its affiliates, and RMB138.0 million to XVC FUND II LP and its affiliates, respectively.

Stakeholder Impact

• Shareholders: Potential for capital appreciation and dividends (though no dividends are expected in the near future).
• Employees: Continued employment and potential for career advancement within a growing company.
• Customers: Access to a wider network of teahouses and innovative products.
• Franchise Partners: Continued support and resources for operating successful teahouses.
• Suppliers: Increased business opportunities through a growing supply chain.

Next Steps

• The company intends to list its ADSs on the Nasdaq Global Select Market under the symbol CHA.
• The company intends to use the net proceeds from the offering for expanding the network of teahouses, developing new products, building overseas supply chain network, investment in technology and for general corporate and working capital purposes.

Key Dates

Keywords

IPO, Chagee, tea drinks, freshly-made tea, China, ADS, franchise, premium tea, tea latte, CSRC, PCAOB