Speaker 1: Now CNA 938 rewind.
Speaker 2: M Xue, the Snow king has claimed the throne, the
Speaker 2: Snowing being the mascot of M Xue. Who and what
Speaker 2: is M Xue. Mix Xue is a Chinese chain that
Speaker 2: sells milk tea, fruit drinks, and ice.
Speaker 2: mostly in China and Australia, although you might have seen
Speaker 2: some shops here in Singapore too. China's Miue has surpassed
Speaker 2: McDonald's to become the world's largest food and drink chain
Speaker 2: by store count.
Speaker 2: Uh, and over the past two years, M Xue has
Speaker 2: doubled the number of store locations to get this 45,000.
Speaker 2: And that's worldwide. So that's more McDonald's 40 McDonald's doesn't
Speaker 2: have 45,000 outlets, but M does. OK, so what's the
Speaker 2: big news now, right? So M went public in Hong
Speaker 2: Kong on Monday, raising $444 million in an IPO.
Speaker 2: Following that, shares jumped over 40% on its market debut
Speaker 2: after it was heavily oversubscribed by more than 100 times
Speaker 2: of the total number of offer shares initially available. So
Speaker 2: you want to get a better understanding of this IPOs.
Speaker 2: So we have uh joining us right now Gary Eng,
Speaker 2: he's senior economist for APEC at Texas. Uh, Gary, thank
Speaker 2: you for joining us and welcome to Open for Business
Speaker 2: on CNA 938. So the listing was heavily oversubscribed. Did
Speaker 2: this come as a surprise to the markets?
Speaker 2: Well, um, first, thanks for having me today. And then
Speaker 2: I don't think this is too much surprise to the market,
Speaker 2: and uh there are two reasons for that. And from
Speaker 2: a general perspective, we do see there is this improvement
Speaker 2: in the sentiment which we really haven't seen in the
Speaker 2: past 3 years in the China-related assets driven by all
Speaker 2: this tech story.
Speaker 2: Dipsy, which has been basically filled the China's growth story
Speaker 2: again that people think that, OK, maybe actually a lot
Speaker 2: of assets may be undervalued compared to what they think before.
Speaker 2: And of course for the case of M, the second
Speaker 2: reason is that it is at a sweet spot even
Speaker 2: though the Chinese economy may be decelerating, but if you.
Speaker 2: at this business model, it is actually targeting the residents
Speaker 2: that may be experiencing a consumption downgrade, but it's offering
Speaker 2: very affordable type of drink with the innovative solution in
Speaker 2: the F&B industry. So it's not really aiming at selling
Speaker 2: something at a very high profit margin, but really about
Speaker 2: the high quantity.
Speaker 2: So quantity over quality in a manner of speaking. So
Speaker 2: uh if we take a look at the timing of
Speaker 2: this listing, Gary, what conclusion can we draw here? Is
Speaker 2: there a link to the boom that we're seeing in
Speaker 2: the Chinese tech sector as well? Well, yes, I think
Speaker 2: that's definitely a very strong connection towards that because I mean,
Speaker 2: of course Misha is not.
Speaker 2: related to the tax story, but the tax rally in
Speaker 2: China really boost the confidence of investors not only in
Speaker 2: China but also globally that people really think and look
Speaker 2: at China's growth story again. So yes, I would say
Speaker 2: that it's not a tech company, but it's definitely related
Speaker 2: to all this tech rally that we have been seeing
Speaker 2: over the past 1 or 2 months.
Speaker 2: And Gary, so we want to talk about Mish Xuan
Speaker 2: now being an attractive investment, it seems, uh opportunity. What
Speaker 2: makes it so attractive? Well, um, indeed, um, if you
Speaker 2: look at the usual China's company growth model, it is
Speaker 2: really about having the very big quantity in terms of
Speaker 2: the size.
Speaker 2: In the domestic market, so 1.4 billion people, if each
Speaker 2: of the residents actually buy one milk tea from them,
Speaker 2: that would be a very big market. But at the
Speaker 2: same time, I think this sort of business in F&B
Speaker 2: is also trying to expand overseas because domestically, of course,
Speaker 2: there's that's pressure on the deflation, but I think M
Speaker 2: is also an example to show that it's
Speaker 2: Able to use it or model not only in China
Speaker 2: but look at what the other overseas market, which may
Speaker 2: actually offer them a higher profit margin model that investors
Speaker 2: may be actually thinking about the future as well. So
Speaker 2: if you put it this way, it's really like a
Speaker 2: story that it can repeat this model maybe towards the
Speaker 2: rest of the world which can challenge, you know, other.
Speaker 2: FNB giants. From the investor's perspective, what risks should we
Speaker 2: be aware of in relation to M's IPO and perhaps
Speaker 2: its future growth prospects as well? I think we should
Speaker 2: also look at the risk of this company and I
Speaker 2: think when we look at the milk tea industry, one
Speaker 2: of the biggest problem that we see here is that
Speaker 2: even though the growth prospects
Speaker 2: seems to be very uh great, but we cannot forget
Speaker 2: the fact that um it is also an industry that
Speaker 2: is highly replaceable, which basically means that in uh like today,
Speaker 2: maybe a consumer really like the product of M share,
Speaker 2: but how Mha can actually distinguish itself versus um other
Speaker 2: players in the future? Would there be any other competitors
Speaker 2: which are able to sell uh
Speaker 2: Cheaper products or basically other sort of products that would
Speaker 2: attract consumer attention and then basically change the consumer spending
Speaker 2: pattern again. I think that is also a very, very
Speaker 2: good question that we should ask and then really depends on,
Speaker 2: you know, how the management will manage this issue. But again,
Speaker 2: compared to many other industry, um, this industry is highly replaceable.
Speaker 2: Gary, Michuan now has the most number of stores owned
Speaker 2: by any food and drink chain. Is this rapid growth sustainable,
Speaker 2: do you think?
Speaker 2: Well, um, I think the biggest difference of me share
Speaker 2: versus some of the other fast food chain is that
Speaker 2: the input costs may be a bit lower and of course,
Speaker 2: um I mean we do talk about that it has
Speaker 2: already surpassed some of the very large American fast food
Speaker 2: chains like McDonald, but let's not forget that for me
Speaker 2: here the story is much smaller. The cost of really
Speaker 2: setting up everything will be much smaller than McDonald because
Speaker 2: of the
Speaker 2: more limited choice of the products is really about limiting
Speaker 2: or focusing on like a few, not a field, but
Speaker 2: like there's many choices, but you know, on drinks itself.
Speaker 2: So the setup basically come with a lower cost. Then
Speaker 2: it is really about when it is expand, right, where the,
Speaker 2: where does the money come from if it is really
Speaker 2: from a very heavy leverage and if there's a certain
Speaker 2: change in the consumer preference, I do think this can
Speaker 2: pose a risk.
Speaker 2: So it is really about whether it can actually keep
Speaker 2: this hype on Mti continue, um, you know, towards other
Speaker 2: market as well, but I I do think that domestically
Speaker 2: it's possible to see more companies trying to tap on
Speaker 2: the same type of business business model because the competition
Speaker 2: is simply quite high in China. Then the question is
Speaker 2: really whether it can expand overseas at a moderately good pace.
Speaker 2: Which at the reasonably OK average. Yes, so I agree
Speaker 2: that it's possible to see, you know, certain over expansion,
Speaker 2: especially in the case within China. So, uh, going back
Speaker 2: to MXue's IPO, what would be the first sign of
Speaker 2: M Xue's true stock value? Uh, if I were an
Speaker 2: investor putting my money on Mue, how would I know
Speaker 2: what exactly is the true value by the time all
Speaker 2: of this hype dies down?
Speaker 2: Well, um, I would say the revenue side will still
Speaker 2: be something very important and of course Mish may have
Speaker 2: a very high market share in China, you basically see
Speaker 2: the stores everywhere and then it's also tapping on this
Speaker 2: consumption kind of downgrade story that people choose to consume
Speaker 2: their products. But I think if we are like looking
Speaker 2: at whether the
Speaker 2: Business model or the profit may actually reach a limit
Speaker 2: and look at some of the other periods FNB chains
Speaker 2: in China which may have fallen into a similar trap.
Speaker 2: For example, Haidao. I think we also have seen this
Speaker 2: hotpot chain everywhere, including in in Singapore, and they have
Speaker 2: adopted a very aggressive strategy and expansion before which at
Speaker 2: the end they need to scale it back. So I
Speaker 2: Don't be surprised that we may end up in the
Speaker 2: same path eventually, but I guess in the short run, um,
Speaker 2: as long as they can still feel their profit with
Speaker 2: a reasonably OK leverage, maybe that business model at least
Speaker 2: will still be sustainable. But I guess once we start
Speaker 2: to see uh and and like expansion in stock at
Speaker 2: the same time, a fall in the profit.
Speaker 2: Per store, I think to me this is like a
Speaker 2: warning signal that maybe there could be a certain stress
Speaker 2: from the overexpansion. I'm not saying this will necessarily happen.
Speaker 2: It really depends on the management, but it will be
Speaker 2: a warning signal to me. Yeah, it will definitely be
Speaker 2: one for the investors as well. In the meantime, we
Speaker 2: probably will have to see more niches popping up around
Speaker 2: the region and around the world before all of that happens. Gary,
Speaker 2: thanks very much for joining us this morning.
Speaker 2: That's Gary Ng, senior economist for APEC at Nitis.