FAST NEWS: Chabaidao’s weak debut bodes poorly for stream of new bubble tea stocks

The Latest: Shares of Sichuan Baicha Baidao Industrial Co. Ltd. (2555.HK), also known as Chabaidao, fell 26.9% from their IPO price of HK$17.50 to close at HK$12.80 in their Tuesday trading debut in Hong Kong.

Looking Up: The international portion of the offering, which typically goes to institutional investors, was slightly oversubscribed. As a result of that relatively strong demand, 95.14% of the shares offered in the IPO went to the international portion.

Take Note: The local portion of the company’s public offering in Hong Kong was only about 50% subscribed, reflecting lukewarm interest among small retail investors.

Digging Deeper: Founded in 2008 and headquartered in Sichuan, Chabaidao is one of the largest tea beverage chains in China. According to third-party data cited in its prospectus, it ranks third in China’s ready-made tea beverage chain market in terms of retail sales, accounting for 6.8% of the industry’s sales last year. The company first applied to list in Hong Kong last August and filed again in February this year before passing its listing hearing. It plans to keep growing through greater penetration in lower-tier cities, expanding overseas and by diversifying into coffee. It is one of at least five bubble tea makers to file for Hong Kong listings since last October, alongside other names like Mixue, Guming and Auntea Jenny.

Market Reaction: Chabaidao’s share continued to fall on Wednesday, their second trading day, falling by another 10% to HK$11.52 by the midday break. The shares have now dropped 34.1% from their IPO price, giving the company a market capitalization of HK$17 billion ($2.18 billion).

Translation by A. Au

To subscribe to Bamboo Works weekly free newsletter, click here