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Bubble-Tea Giant Mixue Surges 43% After HK’s Biggest IPO of Year

(Bloomberg) -- Mixue Group, China’s largest bubble-tea chain, surged in its Hong Kong trading debut after individual investors flocked to the company’s blockbuster HK$3.45 billion ($444 million) initial public offering.

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The stock closed up 43% on Monday after being sold at HK$202.50 apiece during the IPO. The deal became so sought after that Hong Kong individual investors applied to borrow more than HK$1.8 trillion to buy the stock, a record for margin loans. The flood of applications led underwriters to stop taking orders a day earlier than planned, people familiar with the matter said.

The popularity of the stock helps fuel optimism over the revival of Hong Kong’s IPO market, which is projected to double this year. Enormous demand — mom-and-pop investors bid for thousands of times the shares they could buy — helped Mixue capitalize on the rage for drinks like bubble tea, a market that’s forecast to surge to $71 billion in three years.

“Whoever wins the mass market wins the world,” said Ben Harburg, founder of CoreValues Alpha. “Demand remains high for Chinese domestic fast moving consumer goods brands.”

For the founder, Zhang Hongchao, and his younger brother, Zhang Hongfu, the share sale bolstered their combined fortune to $8.1 billion according to the Bloomberg Billionaires Index. That’s more than what Howard D. Schultz, the former chief executive officer of Starbucks Corp., is worth.

Founded in 1997 in central China’s Henan province, Mixue has morphed into a food-and-beverage giant with over 45,300 shops — more than Starbucks or McDonald’s Corp. — by selling $1 bubble tea, coffee and ice cream. Mixue relies on a franchising model to help it open shops across the country, with a deep penetration into lower-tier cities and towns.

The company has been consistent in keeping prices low and resisted the urge to quickly chase margins through price hikes — which some of its competitors did, said Jamie Zhou, a deputy fund manager at M&G Investments, which bought $60 million worth of Mixue shares as a cornerstone investor.

“They have stuck to their core,” Zhou said. Mixue’s deal was M&G’s first IPO in Asia Pacific where it participated as a cornerstone, meaning it has to keep the shares for at least six months, he added.

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