Goldman First Coverage on CHAGEE Holding Co Limited: Weakening Domestic Momentum Neutral Rating for Overseas and New Products
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Goldman First Coverage on CHAGEE Holding Co Limited: Weakening Domestic Momentum Neutral Rating for Overseas and New Products
Same-store sales of CHAGEE Holding Co Limited in China face pressure while store expansion space is limited; overseas expansion and ice cream product line are potential growth points but need time for verification.
- First coverage with a neutral rating and a price target of $13.60 based on a 10 times P/E ratio for 2026.
- China faces double-digit downward pressure on same-store sales SSSG and expects non-GAAP net profit to remain flat in 2026.
- Increased proportion of direct stores and investment in overseas markets weigh on profitability as overseas operations are currently in an unprofitable investment stage.
- Potential upside comes from expanding into East Asia such as South Korea and successfully promoting the Geelato ice cream product line.
- The company has substantial cash reserves around RMB 8 billion which have potential for further shareholder returns.
Report interpretation
Overview
Goldman Sachs provides its first coverage of Chagee Holdings CHA US with a neutral rating and a target price of $13.60 The report notes that despite strong quarterly performance exceeding expectations driving stock price rebounding domestic business as the main revenue source faces challenges including downward pressure on same-store sales SSSG due to declining expansion space This requires reliance on execution efficiency in overseas markets and development of new product lines such as ice cream to become future engines of growth although it will take time and effort to translate these into real profits.
Core views
Structural challenges faced by domestic business include Chagee Holding Co Limited holding a 10 share in the Chinese freshly brewed tea market since entering a same-store sales downturn period starting Q4 2024 Reasons include dilution effects from rapid store openings reduced brand popularity and intense competition particularly companies not participating in food delivery subsidy strategies Goldman predicts a 12同比下降 in monthly average GMV in China by 2026 and given their high-end branding and concentration in malls subsequent room for store expansion is limited targeting approximately 7000 to 10000 outlets similar to mature brands Profitability under pressure and earnings forecast With increasing repurchase of franchisees in China and international expansion the proportion of direct store revenues is expected to rise from 12 in 2025 to 29 in 2026 As direct stores have higher operating costs and international operations are in a loss-making investment phase this poses resistance to overall profitability Goldman forecasts unchanged non-GAAP net profit for 2026 with a compound annual growth rate of just 3 between 2025 and 2028 significantly lower than other top-tier peers like Miaxice Snowy and Luckin Coffee expecting double-digit growth rates. Potential growth drivers and valuation International focus initially targets ASEAN however smaller scale and purchasing power limitations restrict opportunities Expansion into East Asia such as South Korea if successful could bring significant improvements in GMV Product-wise testing of the Geelato ice cream if promoted across 2000 to 3000 stores can boost peak season sales by two digits Based on a 10 times P/E multiple for 2026 giving a target price of $13.60 implying a 17 upside.
Analysis framework
Goldman Sachs employs scenario analysis combined with industry peer benchmarking Firstly through comparing Starbucks Haidilao etc experiencing same-store sales declines it evaluates current drop levels and duration suggesting still relatively high but trending down Secondly constructs single-store economic models UE calculating payback periods under different assumptions about monthly average GMV to infer possibilities of opening or closing stores Finally combines market size estimates internationally and penetration rate analyses for new products to quantify upward potential.
Methodology notes
Oversupply and demand differentiation in the fresh tea drink industry
Analysis of supply glut issues following rapid industry expansion and shifts in consumer preferences towards value-for-money and health aspects explains why Chagee Holding Co Limited faces market pressures due to its premium pricing without subsidies.
Impact of Direct vs Franchise Models on Profit Margins
The report highlights how rising proportions of direct stores increase fixed costs and operational expenses thus reducing net margins offering key insights for assessing profitability quality in chain restaurant businesses.
Relative valuation based on forward P/E multiple
Using 10 times the expected EPS for 2026 to determine target prices common relative valuation method suitable for stable yet moderately growing consumer brands.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- CHAGEE HOLDINGS CHA.USDirect Benchmark Benefiting from Brand Premium Positioning Yet Constrained by Domestic Growth Bottlenecks
- Strengths
- Strong Brand Recognition Efficient Supply Chain Focused on Tea Quality Generous Cash Reserves
- Weaknesses
- Single Product Line Higher Direct Store Ratio Pressures Profits Unprofitable Overseas Operations
- Comparison
- Lower Growth Rates Than Peers Like Mi Xue Bing Qing Lu Xin Despite High Average Store GMV
- Risks
- Product Lifecycle Failure Reputational Risk From Food Safety Issues Difficulties in Foreign Market Adaptation Increased Competition Leading To Continuous Margin Pressure
Key data
- Target Price$13.60Based on 10 times P/E for 2026
- 2026E Non-GAAP Net Profit Growth Rate0%Forecast remains flat below peer group's double-digit growth expectation
- Number of Stores in China Region7,100+Data at end of 2025 with limited expansion space
- Proportion of Direct Store Revenue Forecast29%Predicted value for 2026 compared to 12% in 2025
- Cash ReservesRMB 8 BillionApproximately 50 percent of current market capitalization
Impact & implications
For investors short-term there lacks robust catalyst for Chagee Holdings' performance as stock prices may be constrained by downward pressure on same-store sales and profitability concerns Long-term success hinges on breaking through in overseas markets especially East Asia or creating a second curve of growth through new products like ice cream Current ample cash reserves offer a safety cushion for shareholder returns though large-scale capital expenditure needs might limit dividend payouts.
Risks
- Product Lifecycle Risk Unable to Launch New Bestselling Products To Maintain Popularity
- Brand Reputation Risk Damage From Food Safety Or Image Issues
- International Expansion Risk Challenges In Local Adaptation Or Cost Control
- Profitability Risk Continued Decline In Margins Due To Rising Proportion Of Direct Stores And Intensified Competition
What to watch
- New Breakout Product Launches And Market Response
- Speed Of Category Expansion Such As Ice Cream Execution And Acceptance By Franchisees
- Growth Performance In Developed Overseas Markets Such As South Korea United States
- Further Changes In Shareholder Return Policies