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Bubble tea — a combination of tea, milk, sugar and chewy tapioca pearls — has been around since the 1980s. Yet among younger Asians, the drink is a modern necessity. Endless variations from strawberry white chocolate to passion fruit keep interest levels high.
Markets have not shown the same enthusiasm for the listing of Chinese bubble-tea maker Sichuan Baicha Baidao Industrial Co — widely known as Chabaidao. It plunged more than 38 per cent on its Hong Kong debut on Tuesday. The flop is not just the tea maker’s fault, though.
The first day fall means its listing will go down in history as one of the worst performances in a decade for flotations of a similar size or bigger. Chabaidao raised $330mn through the IPO.
Yet, China’s domestic coffee and tea chains are fast growing and lucrative industries. Chabaidao, which is China’s third-largest maker of fresh tea drinks, has recorded spectacular growth. Store numbers have grown more than 10-fold to more than 8,000 in the past four years. Sales increased more than a third to Rmb5.7bn ($786mn) last year. Local coffee chain Luckin, whose revenues nearly doubled last year to a fresh record, is another example of a broader trend of consumers favouring local brands.
There is reason for concern. Even that growth rate is no guarantee in a market where the barriers to entry are low and competition fierce. Peers are expanding their network rapidly, with rival Mixue hitting 36,000 stores. Many competitors, including Hunan Chayue Cultural Industry Development Group — also known as Sexy Tea — Mixue Group and Guming Holdings are also expected to seek listings in the near future.
But this flop isn’t just down to Chabaidao. It would usually be rare to see a listing for a profitable company that was not oversubscribed many times over by local retail investors. Chabaidao was undersubscribed. That reflects weak local investor sentiment amid a falling market. The benchmark Hang Seng index is down 45 per cent from its 2021 peak. New listings in Hong Kong have fallen nearly a third in the first quarter to the lowest levels in over a decade.
The bursting of Chabaidao’s bubble will now set the tone for the Hong Kong IPO market in the coming months. During a time of high competition for scarce funds, heading to market ahead of its rivals didn’t serve it well.
june.yoon@ft.com
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