Chagee Q1 2026 Results Beat Expectations, Announces Share Buyback Plan, Maintains Buy Rating

Overview

This report analyzes Chagee's financial performance in the first quarter of 2026. Although net profit declined year over year, it surpassed market expectations. The company announced a substantial $150 million share buyback plan, demonstrating management's confidence in the company's future prospects. Following challenges in 2025, Chagee is gradually regaining growth momentum through improved operational efficiency and the launch of new products. The report maintains a buy rating, with a target price of $19.70.

Core views

In Q1 2026, Chagee reported RMB 3.546 billion in revenue, up 5% year over year, and non-GAAP net profit of RMB 507 million, down 25% YoY but still exceeding market expectations. Gross margin improved compared to both the same period last year and the previous quarter, primarily due to reduced raw material cost pressures and increased contributions from converting franchise stores into company-operated outlets. The company unveiled a $150 million share buyback plan, which analysts believe better aligns with the interests of both the company and its investors than dividends. Current valuations remain relatively low, with a P/E ratio of 9x, and the company holds strong net cash reserves (approximately RMB 7 billion). The report notes that after facing challenges in 2025, Chagee has demonstrated resilience by optimizing operational efficiency, accelerating new product launches, and successfully navigating the impact of takeout subsidy wars. Despite ongoing risks such as intensifying market competition and potentially slower-than-expected store expansion, the company is taking steps to regain growth momentum.

Analysis framework

The report employs a DCF cash flow discount model for valuation, factoring in projected non-GAAP net profits from 2026 to 2028, while reducing the mid-term growth rate to 4% to account for macroeconomic uncertainties. Additionally, the report provides a detailed analysis of the company's profitability, operational efficiency, and new product introductions, combining market trends and financial data to conclude that a buy rating should be maintained. On the demand side, the report highlights Chagee's efforts in product innovation and expanding consumption scenarios, such as launching new low-caffeine beverages and introducing morning promotions. On the supply side, it emphasizes progress in improving operational efficiency, including reductions in sales and administrative expense ratios and workforce optimization measures. Valuation-wise, based on the DCF model, the target price is set at 13 times the projected 2026 P/E ratio.

Methodology notes

• Valuation MethodDCF Cash Flow Discount

  DCF cash flow discount is a common valuation method that estimates a company's intrinsic value by projecting future free cash flows and discounting them back to the present using an appropriate discount rate.

  In this report, analysts applied the DCF model, assuming a terminal growth rate of 1% and a weighted average cost of capital of 13%, resulting in a target stock price of $19.70.

• Company Fundamentals and Financial Framework

  The report examines Chagee's operational efficiency, changes in profit margins, and new product launches.

  By comparing historical data with industry averages, the report demonstrates Chagee's progress in cost control, gross margin improvement, and accelerated new product rollouts—factors collectively driving enhanced performance.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• CHA.US

  Benefiting from the buyback plan and improved operational efficiency

  Strengths

  Solid financial position, proactive product innovation strategy

  Weaknesses

  Intensified market competition, potential slowdown in store expansion

  Comparison

  Compared to peers, Chagee's valuation appears more attractive

  Risks

  Market competition, fluctuations in raw material prices, food safety concerns

Key data

• Q1 2026 RevenueRMB 3.546 billionUp 5% year over year
• Q1 2026 Non-GAAP Net ProfitRMB 507 millionDown 25% year over year
• Buyback Plan Size$150 millionExpected yield around 8%
• Target Price$19.70Based on 13x projected 2026 P/E ratio

Impact & implications

The report believes Chagee's buyback plan will bolster shareholder confidence, while advancements in operational efficiency and product innovation suggest promising growth potential ahead. Despite risks such as heightened market competition and possible slowdown in store expansion, the company's valuation remains attractive, offering potential for sustained growth over the long term.

Risks

• Intensified market competition
• Slower-than-expected store expansion
• Weakened control over franchisees
• Fluctuations in raw material costs and quality
• Food safety issues

What to watch

• Progress of the buyback plan implementation
• Market response to new product launches
• Further improvements in operational efficiency