Stock Analysis & Valuation Guming (1364.HK)

• Previous Close: HK$28.76
• Sector Valuation Confidence Level: Moderate

Valuation method	Value, HK$	Upside, %
Artificial intelligence (AI)	37.60	31
Intrinsic value (DCF)	156.13	443
Graham-Dodd Method	4.90	-83
Graham Formula	17.10	-41

Strategic Investment Analysis

Company Overview

Guming Holdings Limited is a leading freshly made beverage company operating primarily in China's competitive tea market. Founded in 2010 and headquartered in Hangzhou, Guming operates an extensive network of franchised tea stores under the Good me brand, complemented by company-operated locations. The company specializes in fruit tea beverages, milk tea drinks, and coffee offerings, serving China's rapidly growing beverage market. Beyond retail operations, Guming engages in trading beverage ingredients and equipment, warehousing and logistics management, research and development, and IT development activities. As a vertically integrated beverage company, Guming controls its entire supply chain from ingredient sourcing to retail distribution, positioning itself strategically in China's massive consumer cyclical sector. The company's focus on franchise expansion and supply chain services has enabled rapid growth in one of the world's largest beverage markets, catering to evolving consumer preferences for premium, freshly made drinks.

Investment Summary

Guming presents a compelling investment case with strong profitability metrics, generating HKD 1.48 billion net income from HKD 8.79 billion revenue, representing an impressive 16.8% net margin. The company maintains robust operating cash flow of HKD 1.32 billion and a strong cash position of HKD 1.94 billion against minimal debt of HKD 175 million, indicating financial stability. However, investors should note the extremely negative beta of -5.59, suggesting high volatility and potential inverse correlation with broader market movements. The company operates in China's highly competitive beverage sector, which faces regulatory uncertainties and changing consumer preferences. While the franchise model provides scalability, it also introduces operational risks related to quality control and brand consistency across numerous locations.

Competitive Analysis

Guming operates in China's intensely competitive freshly made beverage market, where it faces competition from both large established chains and numerous regional players. The company's competitive advantage stems from its vertically integrated business model that encompasses supply chain management, ingredient trading, and franchise operations. This integration allows Guming to maintain quality control while potentially achieving cost efficiencies. The franchise-focused expansion strategy enables rapid market penetration without the capital intensity of company-owned stores. However, Guming must compete with well-funded competitors who have stronger brand recognition and larger store networks. The company's positioning in the mid-market segment requires constant innovation to differentiate from both premium competitors offering higher-quality ingredients and budget competitors competing on price. China's beverage market is characterized by rapidly changing consumer trends, requiring continuous product development and marketing investment. Guming's regional concentration in certain markets may limit its growth potential compared to nationwide competitors, though this focused approach allows for deeper market penetration and operational efficiency in its core regions.

Major Competitors

• Nayuki Holdings Limited (9983.HK): Nayuki is a premium tea chain operator with strong brand recognition and company-operated store focus, offering higher-priced premium beverages. While Nayuki targets the premium segment with higher average selling prices, Guming operates in the more mass-market segment. Nayuki's company-operated model provides better quality control but limits expansion speed compared to Guming's franchise approach. Both companies face similar supply chain challenges in China's competitive beverage market.
• Nongfu Spring Co., Ltd. (2150.HK): Nongfu Spring is a diversified beverage giant with strong distribution networks and brand power across multiple beverage categories. While primarily a packaged beverage company, its scale and distribution capabilities pose indirect competition. Nongfu's extensive retail relationships and manufacturing capabilities give it cost advantages that specialized tea chains like Guming cannot match. However, Guming's focus on freshly made beverages provides differentiation from Nongfu's packaged products.
• Starbucks Corporation (SBUX): Starbucks dominates China's coffee market with premium positioning and strong brand loyalty. While primarily a coffee chain, Starbucks has expanded into tea beverages, directly competing with Guming's offerings. Starbucks' global brand recognition and premium store experience command higher prices, but Guming's local focus and understanding of Chinese tea preferences provide competitive advantages. Starbucks' slower expansion pace and higher price points leave room for local competitors like Guming in the mass market.
• Luckin Coffee Inc. (LKNCY): Luckin Coffee revolutionized China's beverage market with its tech-driven, delivery-focused model and aggressive pricing. While primarily coffee-focused, Luckin has expanded into tea beverages, directly competing with Guming. Luckin's digital capabilities and rapid store expansion pose significant competition, though its past financial controversies create uncertainty. Luckin's scale and technology investments give it advantages in delivery and digital ordering that smaller chains must match to compete effectively.
• Heytea (Private): Heytea is a major privately-held competitor known for premium cheese tea and innovative beverage concepts. As one of China's most valuable tea chains, Heytea sets trends in product innovation and premium positioning. While Heytea focuses on premium markets and company-operated stores, Guming's franchise model targets broader market penetration. Heytea's strong brand and product innovation capabilities make it a formidable competitor in product development and consumer trendsetting.
• Mixue Bingcheng (Private): Mixue Bingcheng is China's largest tea chain by store count, competing aggressively on price with ultra-low-cost positioning. With over 20,000 stores, Mixue's scale and cost leadership pose significant competition in the value segment. While Guming targets slightly higher price points, Mixue's massive scale and efficiency in low-tier cities create pricing pressure across the market. Mixue's franchise model and supply chain efficiency represent the extreme of cost competition in the industry.