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On Thursday, BofA Securities analysts downgraded Mixue Group (2097:HK) stock from Neutral to Underperform, citing valuation concerns. The analysts also raised the price target to HK$465.00 from HK$400.00, reflecting a 16% increase due to solid sales projections in China.
The analysts noted that Mixue Group’s stock has surged 204% since its initial public offering, compared to a 1% increase in the MSCI China index. The stock currently trades at 40x and 33x the projected 2025 and 2026 price-to-earnings ratios, respectively. Despite recognizing Mixue as China’s largest freshly made tea player with robust supply chains, the analysts expressed concerns over its current valuation.
The report highlighted the impact of online platform delivery subsidies on same-store sales growth, suggesting these subsidies may not be sustainable and could present challenges in 2026. Additionally, the analysts pointed out that the market might have overlooked the company’s guidance regarding above-trend margins in 2024, and the intention to pass on supply chain efficiency gains to franchisees in 2025.
Furthermore, the report indicated potential pressure on Mixue’s overseas and coffee businesses, which could limit long-term growth prospects. The rising costs of coffee beans and milk powder are also expected to contribute to a 2% gross profit margin erosion in 2025.
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