Luckin Coffee (LKNCY) Report Interpretation

Overview

This update assesses Luckin Coffee’s 2Q26 results and the outlook for the second half of 2026. Deutsche Bank views the profit beat, continued store rollout and normalizing delivery mix as support for higher earnings estimates, a higher DCF-based target price and a reiterated Buy rating.

Core views

Luckin’s 2Q26 revenue was RMB15.9bn, up 28.5% year on year and broadly in line with Deutsche Bank’s expectations. Growth was supported by more than 2,700 net new store openings during the quarter, despite an approximately 5% year-on-year decline in self-operated same-store sales. Non-GAAP net profit, excluding share-based-compensation effects, reached RMB1.8bn, up 22.8% year on year and ahead of market expectations. The report attributes the profit beat mainly to a faster-than-expected normalization in delivery mix. The company had surpassed 36,000 stores by the first half of 2026 and remained positive on the long-term growth of China’s coffee market. Management expects continued store expansion across all city tiers, supported by more consumption occasions and a broader product portfolio. Although industry competition remains intense, Luckin expressed confidence that digital capabilities and improving operating efficiency can sustain healthy store quality over time. For 2H26, the report is cautiously positive. Luckin is addressing a high same-store-sales comparison base in 3Q through product innovation, product upgrades and customer-experience initiatives. Deutsche Bank expects profit margins to improve as delivery mix continues to normalize. It argues that solid operating-expense performance already demonstrated in 2Q26 and the delivery-mix benefit should more than offset the temporary 3Q same-store-sales headwind, leading to year-on-year operating-profit-margin expansion in 2H26. Reflecting the results and analyst briefing, Deutsche Bank raises its 2026E total-store-count assumption to 39,000–40,000 from approximately 38,000. It also lowers delivery expense as a percentage of revenue for 2026E–28E. These changes lift projected revenue to RMB61,979m, RMB73,027m and RMB81,162m for 2026E–28E, respectively, and raise non-GAAP net-profit estimates to RMB5,181m, RMB6,426m and RMB7,538m. The 2026E–28E non-GAAP earnings uplift averages about 4%, with the largest increase in 2026E. The report raises its DCF-based target price to USD51.70 from USD48.60, using a 9% WACC and 1% terminal-growth rate; the new target implies 19x 2026E P/E. Deutsche Bank reiterates Luckin as its Top Pick in China’s freshly made drinks sector. Its valuation case rests on the stock trading at 14x 2026E P/E against expected EPS CAGR above 20% in 2026E–28E, compared with China peers at 13x P/E on 14% EPS CAGR.

Analysis framework

Deutsche Bank starts with the quarterly revenue and profit outcome, links the earnings beat to delivery-mix normalization, and then assesses management’s store-growth and operating outlook. It revises store-count and delivery-expense assumptions, translates them into 2026E–28E earnings changes, and values the shares using a discounted-cash-flow framework alongside P/E and growth comparisons with China peers.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash flow valuation using a 9% WACC and 1% terminal-growth rate.

  The report discounts projected future cash flows using its required return and terminal-growth assumptions to derive the revised USD51.70 target price.

• Valuation methodsP/E and PEG Valuation

  P/E valuation compared with projected EPS growth.

  The report compares Luckin’s 14x 2026E P/E and more than 20% 2026E–28E EPS CAGR with China peers’ 13x P/E and 14% EPS CAGR.

Asset mapping & comparison

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

• Luckin Coffee (LKNCY.PK)

  Primary covered company; Deutsche Bank reiterates Buy and Top Pick status after a 2Q26 profit beat.

  Strengths

  More than 2,700 net new stores in 2Q26, over 36,000 stores by 1H26, digital capabilities, operating-efficiency improvement and normalizing delivery mix.

  Weaknesses

  Self-operated same-store sales declined approximately 5% year on year in 2Q26 and face a high comparison base in 3Q26.

  Comparison

  The report cites 14x 2026E P/E and more than 20% EPS CAGR for Luckin versus China peers at 13x P/E and 14% EPS CAGR.

  Risks

  Intense industry competition and temporary same-store-sales pressure from the 3Q26 high base.

Key data

• 2Q26 revenueRMB15.9bnUp 28.5% year on year and broadly in line with expectations.
• 2Q26 non-GAAP net profitRMB1.8bnUp 22.8% year on year; ahead of market expectations, mainly due to faster delivery-mix normalization.
• 2Q26 net store additions2,700+Supported quarterly revenue growth.
• Store count at 1H2636,000+The company had surpassed this level by the first half of 2026.
• 2026E store-count assumption39,000–40,000Raised from Deutsche Bank’s prior assumption of approximately 38,000.
• 2026E non-GAAP net profitRMB5,181mRaised 7.8% from the prior RMB4,808m estimate.
• 2026E non-GAAP operating margin11.3%Raised from 10.0%, a 1.3 percentage-point increase.
• Target priceUSD51.70Raised from USD48.60; based on DCF using 9% WACC and 1% terminal growth.

Impact & implications

The report argues that delivery-mix normalization and operating efficiency are strengthening profitability while expansion continues. In Deutsche Bank’s view, these margin benefits should outweigh the near-term 3Q same-store-sales comparison pressure and support earnings growth and the revised valuation.

Risks

• Intense competition in China’s coffee industry could affect store quality and operating performance.
• A high 3Q26 same-store-sales comparison base creates a near-term sales headwind.

What to watch

• Progress in product innovation, upgrades and customer-experience initiatives intended to mitigate the 3Q26 same-store-sales high-base effect.
• Whether delivery mix continues to normalize and supports the expected 2H26 margin improvement.
• Continued store expansion across city tiers and execution toward the revised 39,000–40,000 2026E store-count assumption.