On August 4, Chinese domestic media reported that HeyTea may go public in Hong Kong next year, with a target valuation of HK $150 billion ($19.29 billion). However, HeyTea responded that they have no listing plan at present.
According to business data firm Tianyancha, after this year’s D round of financing, HeyTea’s valuation has reached 60 billion yuan (9.28 billion) – the largest financing among China’s “new-style tea-based beverages” sector. Up to now, HeyTea has secured five rounds of financing, led by IDG Capital, Longzhu Capital, Sequoia China and Hillhouse Capital.
Many primary market investors reckon that HeyTea’s high target valuation stems mainly from its solid brand value. However, unlisted enterprises remain immature. Only after entering the secondary market can a relatively accurate valuation be given by measuring store profitability or the operation status of funds.
Nayuki, one of HeyTea’s major competitors, was expected to receive 35-40 billion yuan in its own IPO. However, after just one day of listing, the firm’s market value shrunk to less than HK $20 billion.
According to the 2020 annual report released by HeyTea in February this year, the company has opened 695 stores in 61 cities around the world, among which 18 cities and 304 stores were added in 2020.
According to data from China Insights Consultancy, in terms of 2020 total retail consumption, HeyTea ranked first in the country’s high-end ready-made tea market, accounting for a share of 27.7%. Nayuki, meanwhile, ranked second, with a market share of 18.9%.
It can be seen from the past year that HeyTea has made great efforts to improve its own valuation, such as promoting two new brands – milk tea-based Xixiaocha and sugar-free carbonated water-based Xixiaoping – as well as investing in Seesaw, a domestic gourmet coffee chain.
SEE ALSO: HeyTea Invests in Seesaw Coffee
Nayuki’s IPO prospectus shows that the cost of raw materials, employees and rental expenses are huge for new-style tea-based beverages brands in first- and second-tier cities and high-end shopping areas. According to domestic media outlet 36 Kr, while the gross profit margin of Starbucks can reach 75% to 80%, the gross profit of tea-based beverages industry, especially direct stores, is only 60%. The 15-20% gap between the two sectors is due mainly to employment, materials and processing costs.