Sichuan Baicha Baidao Industrial, which owns and operates a chain of bubble-tea shops in mainland China, tanked on its first day of trading in Hong Kong, as investors shunned the city’s biggest initial public offering (IPO) of the year amid shaky sentiment.
The shares slumped 27 per cent to close at HK$12.80 after falling by as much as 38 per cent in intraday trading. It was the worst first-day performance for any IPO in Hong Kong valued above US$300 million since June 2018, when Ganfeng Lithium Group plunged 29 per cent on debut, according to Bloomberg data. The Hang Seng Index added 1.9 per cent on Tuesday.
The sombre debut of Baicha Baidao, China’s third-largest maker of fresh tea drinks and also known as Chabaidao, underscores a challenging environment for Hong Kong’s IPO market, where the value of new offerings slumped by almost 30 per cent to US$604 million in the first quarter for the worst start since 2009. The Hang Seng Index has been languishing this year after an unprecedented four years of losses up to 2023, with China’s dismal economic outlook and tensions between Beijing and Washington triggering an exodus of foreign investors.
“The tea drinks market is very competitive and it’s very difficult for the products to be different and unique,” said Dai Ming, a fund manager at Huichen Asset Management in Shanghai. “Also the price of the stock is a bit high and investors are concerned because of the fragile market environment.”
The shares were valued at 21 times earnings for the past year versus a multiple of six times for the Hang Seng Index, data from Essence International and Bloomberg shows.
Chabaidao, based in the southwestern city of Chengdu, raised about HK$2.6 billion (US$331.7 million) from the sale of 147.8 million shares at HK$17.50 each. It operates the chain under the name of ChaPanda, which has a strong foothold in China’s southern provinces. It sells a variety of fruit tea drinks catering to a predominantly young clientele. The company owns more than 8,000 stores across the country, compared with 500 in 2019, according to its website.
A downbeat sentiment in the broader market has curbed investors’ appetite for new shares in Hong Kong, where IPOs risk falling below offer prices on the first day of trading, resulting in losses for subscribers. That stands in sharp contrast with the situation on the mainland, where new shares are typically sold at big discounts to existing equities to ensure there are no IPO failures.
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Tianjin Construction Development Group, another company which started trading in the city on Tuesday, also slumped, sinking 39 per cent to close at HK$1.52.
Weak consumer spending on the mainland is seen as one of the major reasons for the slump in Chabaidao’s shares. China’s retail sales grew at a slower-than-expected pace in March, suggesting that consumers were tightening purse strings amid shrinking incomes and fear of losing jobs.
Chabaidao will use the IPO proceeds to fund its expansion in China as well as for branding and promotional activities, digital transformation and improving its operational efficiency. The company’s revenue increased 35 per cent year on year to 5.7 billion yuan (US$787 million) in 2023.
Some of its rivals are also preparing to list in Hong Kong. Mixue, which has roughly 36,000 stores, plans to raise as much as US$1 billion from its IPO, while Guming, with 9,000 shops, aims to raise up to US$500 million, according to sources.