Dongwu Securities: The prospects for maintaining the Mitsuxue Group (02097) “buy” rating affordable track are clear

The Zhitong Finance App learned that Dongwu Securities released a research report saying that as a leader in affordable ready-made drinks, Michelle Group (02097) continues to consolidate sales potential with high quality and price ratio single products and IP brand marketing, single store profits continue to be highly competitive, and the path to increase share is clear. The company's net profit from 2025 to 2027 is estimated to be $58.5, 65.2, and 7.30 billion yuan, +32%, +12% over the same period last year, corresponding PE of 24, 21, and 19x, maintaining a “buy” rating.

The main views of Dongwu Securities are as follows:

High quality and affordability, the $1 business has become the country's leading beverage

As the world's leading ready-to-drink company, the Michelle Group is committed to providing consumers with freshly made fruit drinks, tea, ice cream, coffee and other products with a unit price of about 6 yuan (1 US dollar). Its current tea brand “Michelle Ice City” and the freshly ground coffee brand “Lucky Coffee” have a total number of stores exceeding 46,000 (as of the end of 2024), and the number of cups produced (2023 data) reached number one in China and second in the world. Focusing on the core proposition of “high quality and affordability,” based on a huge network of terminal stores, the company's revenue mainly comes from product and equipment sales, that is, the materials and equipment needed to make drinks are sold to stores through its own supply chain.

Building a foundation for an integrated industrial chain, leading price-quality ratio

On the affordable tea drinking circuit, the company achieved large-scale sales volume with high quality and price ratio products, and has been deeply involved in building its own supply chain, store franchise management, and product development and renewal for more than 10 years, thus gradually building a competitive moat unique to a niche market. At the front end of the market, Michelle's core products all ignite the market with intuitive contrasting affordable pricing. The “high quality and affordable” brand positioning is deeply rooted in the hearts of the people, and Xuewang IP's people-friendly interaction has also successfully established a unique emotional connection with consumers; at the back end of the supply chain, the company continues to cultivate and refine the supply chain system with industrial thinking, and has now become the most vertically integrated and large-scale brand in the domestic tea industry — a positive feedback flywheel with large-scale resonance between the front and back ends.

Ready-made tea is booming, and the prospects for affordable racetracks are clear

I am optimistic that the affordable tea drinking segment will continue to grow rapidly in the future, mainly due to: 1) The unit price of affordable tea drinkers is lower, which is more biased towards the logic of mass consumption upgrade, and there is still plenty of room for penetration among consumers in the sinking market. 2) The price of affordable tea drinks is basically close to that of the same type of packaged drink. As a “water replacement”, it has mandatory consumption attributes, and the growth stability is stronger. After early horse racing, the current number of stores in the industry has significantly exceeded demand. In the future, the trend of tea brands eliminating the bad and retaining the best will accelerate. Brands with strong product strength (strong supply chain establishes high quality and cost ratio, strong R&D guarantees continuous export of explosive products) and strong channel power (store operation and maintenance management with high standards and strong support) are expected to continue to increase their share. As the leading brand of affordable tea drinks, the share increase trend is highly visible. The bank expects the number of domestic stores to reach about 70,000, and the number of Southeast Asian stores will reach 1-15,000. The results of the market's store-type refining are also worth looking forward to.

Demand for freshly ground coffee is growing, and brands compete for card slots

Freshly ground coffee is the fastest growing segment in China. Currently, it is still in the market education stage. Furthermore, with the sinking of Internet users and the spread of coffee culture, demand for coffee is sinking. “Lucky Coffee” takes the low-tier market as its basic market and promptly enters the “first cup” of coffee for young people in the small town. In terms of product promotion, location selection, and supply chain synergy, the bank targets the location of the main brand business district of Michelle. The bank expects 20,000 Lucky Coffee stores in the medium term.

Risk warning: Market competition intensifies, consumer demand growth is insufficient, overseas store expansion falls short of expectations, and brand value and image are damaged.