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Chinese tea chain Chagee is in the early days of a long runway for strong growth, according to Citi Research. Analyst Xiaopo Wei initiated the stock with a buy rating and $43.70 price target, suggesting shares stand to gain nearly 44% from their latest close. Shares of Chagee are down more than 10% since the company made its public market debut on April 17. The stock has rebounded roughly 14% this week, however, after Chagee on Friday reported a significant beat for its first quarter. Chagee is a “fast-growing premium tea play,” Wei said in a Wednesday note to clients, pointing to the company’s roughly 20% market share among China’s premium freshly made tea brands as of the end of last year. The company operated 6,681 teahouses as of the end of March, representing 63.6% growth from the year-ago period. Wei expects the company to continue to grow rapidly abroad as it leverages its automation and standardization capabilities. These factors contribute to Wei’s bullish sentiment on the stock. “As the leader in the premium segment, Chagee well differentiates itself from most value players with its solid long-term product strategy (simple core menu), managed franchise model (with technology-powered “Five Things Online”), strong brand equity (via social-media marketing), and high efficiency (via automation and standardization),” Wei wrote. CHA 1Y mountain Chagee stock over the past year. According to Wei, Chagee is a unique tea brand, with strong oversight of its franchises given its digitized processes, which it calls “Five Things Online.” This entails that the speedy preparation of its tea drinks as well as customer payments are done online as is the support of its customers and franchisees, its store life cycle management and supply chain management. “Its expansive franchise network, combined with its strong oversight management approach, enables the company to expand rapidly while achieving healthy and sustainable operating results,” Wei said. He added that this process allows for a “mutually beneficial relationship” between Chagee and its franchise partners. At the end of last year, 160 Chagee stores were company-owned, while more than 6,250 were franchise stores, he said.
