Stock Analysis & Valuation Chagee Holdings Limited American Depositary Shares (CHA)

• Previous Close: $11.76
• Sector Valuation Confidence Level: Low

Valuation method	Value, $	Upside, %
Artificial intelligence (AI)	n/a	n/a
Intrinsic value (DCF)		n/a
Graham-Dodd Method	11.70	-1
Graham Formula	324.00	2655

Strategic Investment Analysis

Company Overview

Chagee Holdings Limited (NASDAQ: CHA) is a leading player in China's rapidly growing tea beverage market, operating under the CHAGEE brand. Founded in 2017 and headquartered in Shanghai, the company owns, operates, and franchises teahouses across China and internationally. Chagee specializes in premium tea drinks, leveraging both online platforms and physical stores to serve its customers. The company also engages in the sale of raw materials, packaging, and teahouse equipment, creating a vertically integrated business model. With a strong presence in the non-alcoholic beverage sector, Chagee capitalizes on China's booming tea culture and rising consumer demand for premium, health-conscious beverages. Its innovative approach and strong brand recognition position it as a key competitor in the consumer cyclical sector.

Investment Summary

Chagee Holdings presents an attractive investment opportunity due to its strong revenue growth (CNY 12.4 billion in FY 2024) and profitability (net income of CNY 2.5 billion). The company benefits from China's expanding tea beverage market and its vertically integrated model, which enhances margins. However, risks include intense competition in the sector, reliance on the Chinese market, and potential regulatory challenges. The lack of dividends may deter income-focused investors, but its robust operating cash flow (CNY 2.8 billion) and low debt (CNY 548 million) suggest financial stability. Investors should weigh its growth potential against sector volatility.

Competitive Analysis

Chagee Holdings competes in China's highly fragmented tea beverage market, where differentiation through branding and product innovation is critical. The company's competitive advantage lies in its vertically integrated supply chain, which allows for cost control and quality assurance. Its CHAGEE brand has gained strong recognition, particularly among younger consumers seeking premium tea experiences. However, the market is crowded with both established players and emerging brands, requiring continuous innovation to maintain market share. Chagee's online and offline integration provides a omnichannel advantage, but scalability outside China remains untested. The company's financial health (high cash reserves, low debt) gives it flexibility to invest in expansion, but its ability to sustain growth amid rising competition will be key to long-term success.

Major Competitors

• Nayuki Holdings Limited (NAYYY): Nayuki is a major competitor in China's premium tea market, known for its cheese tea and fresh fruit beverages. It has a strong urban presence but faces higher operational costs due to its emphasis on dine-in experiences. Compared to Chagee, Nayuki has a more upscale positioning but slower expansion.
• HEYTEA (HEPS): HEYTEA is a leading innovator in China's tea drink sector, famous for its cheese tea and viral marketing. It competes directly with Chagee in premium segments but has a more limited franchise model. HEYTEA's strength lies in product R&D, though its scalability lags behind Chagee's.
• Alibaba Group (through Ele.me/Koubei) (BABA): While not a direct competitor, Alibaba's food delivery platforms influence beverage sales. Chagee benefits from online partnerships but faces platform fees and competition from smaller brands promoted on these marketplaces.
• Starbucks China (SBUX): Starbucks competes in the premium beverage space with its tea offerings under Teavana. It has strong brand loyalty but lacks Chagee's localized tea expertise. Starbucks' global scale is an advantage, but its growth in China's tea market has been slower.