On April 23rd, ChaPanda officially listed on the main board of the Hong Kong Stock Exchange, becoming the second major player in the tea beverage market to go public after Nayuki. However, on its first day of trading, the stock experienced a significant decline of over 10%, with the decline continuing to widen. Currently, it has dropped over 30%, trading at HKD 12.22, with a turnover of HKD 66.1078 million and a total market capitalization of HKD 18.057 billion.

(Data source: Securities Times, April 23, 2024)

According to the prospectus disclosed by ChaPanda, the stock had a 100% allotment rate, meaning that retail investors who participated in the subscription were able to receive stock allocations. In the subscription for Class A investors, there were a total of 4,589 participants, with one investor receiving the highest allotment of 100,000 shares. This means that the retail investor is currently facing a loss of HKD 628,000 in the subscription. This has discouraged many investors from participating in this largest IPO.

Identifiable Reasons for ChaPanda's Sharp Stock Price Decline

The sharp decline in ChaPanda's stock price may be attributed to the following factors:

1. Performance in the Pre-IPO Market

ChaPanda experienced a significant decline in the pre-IPO market, with a decrease of 13.71% and a maximum intraday decline of 15.43%. This indicates a lower market acceptance of ChaPanda, with investors adopting a cautious or negative outlook on its prospects. The decline in the pre-IPO market may have affected investor confidence, leading to selling pressure and further lowering the stock price upon its official listing.

2. Insufficient Retail Subscriptions

During the subscription for ChaPanda's IPO, retail investors showed limited enthusiasm, and even undersubscription occurred. As of April 18th, ChaPanda only received HKD 85 million in subscriptions from retail investors through securities firms, falling short of the required amount. This means that ChaPanda had to rely on underwriters for international placements. Data shows that international placements accounted for only 95.04% of the total global share offering. This indicates a cautious attitude towards the stock in the secondary market. Typically, in Hong Kong IPOs, a portion of shares is allocated for public offering to retail investors, while the majority is offered to institutional investors through international placements.

3. Intense Competition in the Industry

The Chinese ready-to-drink tea shop market is highly competitive, and ChaPanda faces increasing competition from other key players. Market reports indicate that the Chinese ready-to-drink tea shop market is substantial, with the top five players holding approximately 40.2% market share, with ChaPanda ranked third with around 6.8% market share. As the number of ready-to-drink tea brands continues to increase, differentiation in terms of product supply and pricing becomes less distinct, intensifying competition further. ChaPanda acknowledged in its prospectus that failure to compete effectively or achieve success in competition could have a significant adverse impact on the company's business performance, financial condition, and future prospects.

4. Performance of Competitors

Nayuki's Tea, another new tea beverage company, also experienced a decline in its stock price after its listing. Nayuki's Tea had an IPO price of HKD 19.8 and dropped more than 10% on its first trading day, with a cumulative decline of 88%. This reflects the intense competition in the tea beverage industry and the market's perception of new tea beverage companies.

ChaPanda: Leading the Tea Beverage IPO Wave, Still Facing Significant Challenges in the Future

According to the latest data from the prospectus, as of the feasible date, ChaPanda has established 8,016 stores in mainland China, with the majority (8,010 stores) being franchise stores, accounting for over 99% of the total store count. ChaPanda's stores are spread across 31 provinces and cities in China, achieving comprehensive coverage of all provinces and various levels of cities in China. Notably, in 2023, ChaPanda's total retail sales reached approximately CNY 16.9 billion.

In terms of revenue composition, ChaPanda primarily generates revenue through selling goods and equipment to franchisees, collecting franchise fees, and royalties for the use of trademarks. These two revenue sources accounted for over 99% of the total revenue in the past three years.

In 2023, ChaPanda successfully completed its first round of financing since its establishment over a decade ago. It was led by Lanson Asia, with participation from reputable institutions such as Zhengxin Valley, Caogen Zhiben, China International Capital Corporation (CICC), and Tomato Capital. The financing amount reached CNY 970 million, bringing ChaPanda's valuation close to CNY 18 billion.

Although ChaPanda emerged as a leader in the tea beverage IPO wave, it still faces significant challenges in the future. ChaPanda openly acknowledges in the prospectus that failure to compete effectively with other key players or achieve success in competition could have a significant adverse impact on the company's business performance, financial condition, and future prospects.

You can participate in IPOs through uSMART HK.

The uSMART HK app has a dedicated IPO center where customers can instantly subscribe to publicly offered new stocks through the app.

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• Low transaction fees: Transaction fees for IPO subscriptions can be as low as HKD 0.
• Pre-market trading: uSMART supports pre-market trading with commission rates as low as 0.05%, with a minimum commission of HKD 12 per order.
• Safety and reliability: Independent custody of assets, encrypted transmission of data in Hong Kong's dual data centers to ensure asset and data security.

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