China freshly made beverages see widening divergence: tea drinks slow down, Luckin extends its lead
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China freshly made beverages see widening divergence: tea drinks slow down, Luckin extends its lead
J.P. Morgan believes that in 1H26, China’s coffee and tea beverage industry is shifting from a broad-based rise to divergence: Luckin Coffee continues to expand and is likely approaching an earnings inflection point, Chagee offers attractive risk-reward, Guming-H needs to wait for improving visibility in 4Q, and Mixue Group-H faces more visible pressure.
- The market has already priced in the tea drink slowdown: Mixue/Guming are down 23%/25% in 2QTD, versus an about 1% decline in the HSI over the same period.
- Luckin is one of the few names still accelerating, with about 4.7k net new stores in 1H26; for 2Q26, JPMe expects about 2.2k net additions and total stores reaching 35.8k.
- FY26 earnings forecasts for Guming and Mixue were cut by 5% and 11%, respectively, and are about 2% and 13% below consensus, respectively.
- Chagee’s domestic same-store sales decline has narrowed for consecutive periods, and together with its US$150mn buyback plan, potential cash dividend, and about 8x FY26E P/E, the risk-reward looks attractive.
- The new preference ranking is Luckin Coffee(OW) > Chagee(OW) > Guming-H(OW) > Mixue Group-H(UW).
Report interpretation
Overview
This report is J.P. Morgan’s 1H26/2H26 earnings preview for China’s coffee, tea drink, and freshly made beverage sector. The core view is that the industry has shifted from last year’s broad uplift to clear divergence: consumers have become accustomed to ordering via delivery platforms, offline traffic is under pressure, and franchisees are becoming more cautious about opening new stores and refurbishing existing ones. Tea drink brands in particular are facing pressure on same-store sales, subsidies, and expansion pace, while Luckin Coffee continues to outperform thanks to its company-operated mix, digitalization, innovation, and cost advantages.
Core views
J.P. Morgan’s new ranking is Luckin Coffee > Chagee > Guming-H > Mixue Group-H. Luckin is viewed as the most prominent winner in the sector, with a potential earnings inflection point in 2Q26 or 3Q26 that could lead to upward consensus revisions. Chagee’s same-store sales recovery is back on track, and its buyback, potential dividend, and low valuation make its risk-reward attractive. Guming-H still has growth potential and competitiveness, but faces tougher base effects and store-opening target pressure in 2H26, so investors are advised to revisit it toward the end of 2026 when 4Q visibility improves. Mixue Group-H faces a more visible slowdown and profit squeeze, so UW is maintained.
Analysis framework
The report compares Luckin Coffee, Chagee, Guming-H, and Mixue Group-H using 1H26/2H26 revenue, gross margin, adjusted operating profit, adjusted net profit, same-store sales, net store openings, store mix, average ticket, GMV per store, valuation multiples, and deviations from consensus. Valuation mainly uses target 2027E P/E, combined with historical trailing P/E ranges, earnings forecast revisions, and share price performance.
Methodology notes
1H26/2H26 half-year split forecasts
The report splits each company’s 2026E into 1H26E and 2H26E, comparing year-over-year changes in revenue, gross margin, adjusted operating profit, and adjusted net profit to assess second-half earnings trends.
Same-store sales and net store openings
Key analytical focus includes the decline in same-store sales, consumer delivery habits, franchisees’ willingness to open stores, and net store additions, in order to assess the sustainability of brand expansion.
Target price-to-earnings method
Luckin Coffee’s target price of US$43 is based on 15x 2027E P/E; Chagee’s target price of US$16.50 is based on 10x 2027E P/E; the report also compares historical 12-month trailing average P/E.
Sector preference ranking
Based on competitiveness, earnings visibility, valuation, and risk-reward, the report presents a relative ranking of Luckin Coffee, Chagee, Guming-H, and Mixue Group-H.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Luckin Coffee (LKNCY US)Top pick, rated OW, target price US$43
- Strengths
- Strong control through company-operated stores, leading store scale, outstanding digital and DTC capabilities, rapid product innovation, clear structural cost advantages, and a possible earnings inflection point in 2Q26 or 3Q26.
- Weaknesses
- Relatively limited operating history, valuation discount due to liquidity constraints, and changes in delivery order mix still affecting margins.
- Comparison
- It continues to expand rapidly even as the broader sector faces pressure; the report says its 1H26 net store openings and 2Q26 net additions both lead peers.
- Risks
- Rapid shifts in consumer tastes, challenges in managing partner stores, rising input costs such as coffee/milk/tea, failure in overseas localization, and reputational risks such as food safety or social media controversies.
- Chagee (CHA US)Core positive name, rated OW, target price US$16.50
- Strengths
- Domestic SSS declines have narrowed continuously, new products and gelato add freshness, franchisee unit economics are relatively healthy, and buybacks plus potential dividends enhance shareholder returns.
- Weaknesses
- Domestic new store openings have slowed significantly, core net profit is expected to decline YoY in 2Q26, and nationwide rollout of gelato still needs validation on equipment investment and unit economics.
- Comparison
- At about 8x FY26E P/E, the report considers it attractive relative to China consumer peers, with risk-reward better than what the market is pricing in.
- Risks
- More aggressive subsidies from third-party delivery platforms could pressure revenue and gross margin, and summer discount mechanisms may create downside risk.
- Guming-H (1364 HK)OW maintained but advised to wait for visibility to improve, target price HK$26
- Strengths
- Growth potential and competitiveness remain intact, and long-term expansion room has not been negated.
- Weaknesses
- FY26 net store opening guidance was cut sharply by 43%; in 2H26 it needs to add about 1.2k net new stores while ensuring SSS stops deteriorating in 3Q and stabilizes in 4Q.
- Comparison
- Near-term earnings visibility is weaker than Luckin and Chagee; the report recommends revisiting it toward the end of 2026 when 4Q comps are cleaner.
- Risks
- Declining willingness among franchisees to open stores, weak offline traffic, rising pressure for marketing support, and possible earnings downgrades for 2H26 and further-out years.
- Mixue Group-H (2097 HK)Negative positioning, rated UW, target price HK$200
- Strengths
- Large store network, with scale advantages still supported by its low-price positioning.
- Weaknesses
- The slowdown is more visible, FY26 earnings forecasts were cut by 11%, and both gross margin and adjusted net profit are under pressure.
- Comparison
- The report ranks it last among the four companies, and its target price is below the current price, implying downside.
- Risks
- Weakening same-store sales, slowing store expansion, gross margin compression, declining franchisee confidence, and earnings falling further below consensus.
Key data
- Sector preference rankingLuckin Coffee(OW) > Chagee(OW) > Guming-H(OW) > Mixue Group-H(UW)The new pecking order is clearly stated on the report’s front page.
- Luckin Coffee target price and current pricePT US$43.00; Price US$30.60Target price horizon is Jun-27; previous target price was US$45.00.
- Chagee target price and current pricePT US$16.50; Price US$11.30Target price horizon is Jun-27; previous target price was US$15.00.
- Guming-H target price and current pricePT HK$26.00; Price HK$21.38Target price horizon is Jun-27; previous target price was HK$38.00.
- Mixue Group-H target price and current pricePT HK$200.00; Price HK$222.60Target price horizon is Jun-27; previous target price was HK$270.00.
- Luckin Coffee 1H26 net store openingsabout 4.7kThe report says Luckin is the only name still sprinting ahead, with 1H26 net store openings above expectations.
- Luckin Coffee 2Q26 previewRevenue Rmb15.6bn, up 26% YoY; gross margin 61.8%; non-GAAP net profit Rmb1.4bn, up 3% YoYThe report believes 2Q26 could be Luckin’s earnings inflection point.
- Chagee 2Q26 previewRevenue Rmb3.6bn, up 8% YoY; gross margin 55%; core net profit Rmb401mn, down 36% YoYSame-store sales decline is expected to be in the low double digits, with domestic expansion slowing to prioritize SSS recovery.
- Guming-H earnings forecast revisionFY26 earnings cut by 5%, about 2% below consensus2H26 faces tougher base effects and pressure from new store targets.
- Mixue Group-H earnings forecast revisionFY26 earnings cut by 11%, about 13% below consensusThe report believes the slowdown is more evident and margin pressure is greater.
- Chagee capital returnUS$150mn buyback plan through Jun 2027, about 7% of market cap; possible cash dividend from 2H26, with JPMe estimating a 6-7% dividend yieldThis is an important source of Chagee’s attractive risk-reward.
Impact & implications
The investment implication is that China’s freshly made beverage sector is no longer suitable for simply buying industry beta, and investors should shift toward company-level selection. Luckin Coffee’s expansion, product innovation, and cost advantages make it the most likely to see earnings upgrades; Chagee’s same-store sales recovery and shareholder returns provide valuation support; Guming-H still has long-term competitiveness, but in the short term needs to prove that 3Q same-store sales stop deteriorating and 4Q stabilizes; Mixue Group-H, by contrast, faces pressure on gross margin and earnings downgrades.
Risks
- Consumers have become accustomed to ordering through delivery platforms, making migration back to brands’ own channels more difficult.
- Weak offline traffic makes franchisees focus more on revenue pressure rather than margin improvement from better order mix.
- Franchisees are less willing to open a second store and refurbish old stores, which could drag on store openings and earnings in 2H26 and beyond.
- To maintain franchisee momentum, brands may need to increase subsidies and marketing support, thereby depressing margins.
- The high base in 3Q26 could be the toughest comparison period for Guming-H and Mixue Group-H.
- Rising raw material prices may squeeze gross margins for companies such as Luckin Coffee.
- New products, overseas expansion, and new businesses such as gelato still need to prove scalability and unit economics.
- Food safety, labor disputes, or social media controversies may damage consumer trust.
What to watch
- Whether Luckin Coffee’s 2Q26 results confirm an earnings inflection point, and whether YoY earnings growth in 3Q26 can accelerate meaningfully.
- Changes in order mix, gross margin, and customer retention after Luckin Coffee’s delivery subsidies taper off.
- Whether Chagee’s domestic SSS decline continues to narrow, and whether gelato is ready for broader rollout.
- Execution of Chagee’s buyback, potential cash dividend in 2H26, and stability of franchisee unit economics.
- Whether Guming-H’s 3Q26 SSS stops deteriorating, and whether 4Q26 stabilizes on a cleaner base.
- Whether Guming-H can add about 1.2k net new stores in 2H26 to meet its FY26 forecast.
- Whether Mixue Group-H’s gross margin remains under pressure and whether earnings forecasts are cut further.
- The impact of delivery platform subsidies, discounts on brands’ own mini-programs, BOGO, and dine-in-only promotions on revenue and gross margin.