Is Cha Baidao following Luckin Coffee's playbook?

The troubles of ChaBaidao continue.

On the evening of October 14, Hang Seng Indexes Company issued an announcement stating that the shares of ChaBaidao listed on The Stock Exchange of Hong Kong Limited have been suspended from trading under investigation by the regulatory authority, and the company's shares will be removed from the Hang Seng Index Series.

A day earlier, this "second new tea drink stock" was just ordered to suspend trading by the Securities and Futures Commission of Hong Kong. Since its listing in April 2024, its share price has dropped by more than 70% compared with the issue price within two and a half years. This trading suspension also stems from its IPO, and its listing trading was a mistake from the very beginning.

The announcement issued by the Securities and Futures Commission of Hong Kong on the same day shows that it has taken action against two "suspicious" groups, as they are suspected of participating in a fraud scheme intended to create a false or misleading appearance of demand for IPO shares. One of the groups was involved in the IPO of ChaBaidao, so the Securities and Futures Commission of Hong Kong directed The Stock Exchange of Hong Kong Limited to suspend the trading of ChaBaidao's shares from 9 a.m. the same day.

Different from the active trading suspension of companies common in the Hong Kong stock market, this is a regulatory-mandated trading suspension. The announcement disclosed that according to the investigation, the Securities and Futures Commission of Hong Kong has issued restriction notices to the suspicious group involved in ChaBaidao's IPO and six related brokerages, prohibiting them from disposing of assets in the accounts of client Sun Ran and eight affiliated companies, with a limit of about HK$4.379 billion.

The suspected fraud and trading suspension once happened to another leading tea drink giant. In 2020, Luckin Coffee was exposed for financial fraud, and delisted from Nasdaq in June of the same year. In December 2020, Luckin Coffee agreed to pay a civil fine of 180 million US dollars to reach a settlement with the SEC.

But the script of ChaBaidao is different from that of Luckin Coffee. The latter involved management in a financial fraud of 2.2 billion yuan that lasted for several quarters; the former is suspected of fraud in IPO subscription demand. Ironically, at the time when Luckin Coffee was delisted, the coffee and tea market was in a stage of explosive growth, and it returned to growth after paying the price of delisting and fines. However, the new tea drink market where ChaBaidao is located is slowing down and showing increasingly obvious differentiation, and its own growth has lagged far behind its peers. It is almost impossible to replicate Luckin Coffee's script of bouncing back from the bottom.

01. An offering that was "artificially guaranteed"

The so-called "IPO manipulation", in layman's terms, means that the company may operate in a real way, but the offering process is tampered with by off-market arrangements. Through operations such as "side agreements" and capital return, a hot subscription situation is artificially created.

In the case of ChaBaidao, the core of the accusation this time can be summarized as "guaranteeing the offering". It is suspected that capital parties first step forward to underwrite the subscription to ensure that the shares can be issued, and after the company is listed, part of the raised funds is indirectly transferred to the underwriting capital in the name of investing in financial products to complete the closed loop.

There is one expression in the announcement of the Securities and Futures Commission of Hong Kong that is worth noting. Part of the IPO proceeds may be transferred out through "undisclosed agreements between the listed company and related groups" and then flow back to the main allotment holders. If this accusation is confirmed, it means that the funds have gone through a cycle of "transferring from the left hand to the right hand", and the booming demand has never existed from the beginning to the end.

Image source / pexels

Such arrangements are not uncommon in primary market valuation and new share offerings, and there is no natural arbitrage space in themselves. But it is a completely different story in the secondary market. Driving up the market value and then selling off all holdings to exit is the simplest way of operation.

Yuan Quan, a lawyer at Beijing Gao Peng (Nanjing) Law Firm and a member of the Securities, Fund and Futures Legal Professional Committee of Nanjing Lawyers Association, told "Dingjiao One" that people usually understand that stock price manipulation is for "pulling up prices to ship out holdings", but ChaBaidao's share price broke the issue price on the first day of listing, and then kept falling all the way. It seems that institutions not only did not make money, but were trapped.

In fact, in this hidden industrial chain called "underwriting manipulation" (or "underwriting-type manipulation"), these institutions can still achieve arbitrage, and even "make profits without any risk". The core logic behind this is to get chips at zero cost, that is, use the money raised by the company itself to lend to "shills" to buy the company's shares. The shills get the shares without spending a penny of their own money. No matter the stock price rises or falls after listing, as long as the shills sell the shares, every penny they earn is pure profit.

How could a star company in the new tea drink track come to the point where it needs to "guarantee the offering"? Turning the clock back to April 2024, the answer is obvious.

At that time, the liquidity of the Hong Kong stock market was sluggish. In the first half of 2024, the average fundraising amount of Hong Kong new shares was only HK$431 million, a year-on-year decrease of about 30%. ChaBaidao's fundraising of HK$2.586 billion was the largest new share offering of the year up to that time. The offering was exclusively sponsored by China International Capital Corporation, but no cornerstone investor was locked in during the whole process.

The situation of early subscription also shows that the market's enthusiasm for ChaBaidao is not high. The Hong Kong public offering only received 0.5 times of subscription, which was not fully subscribed; the international offering only received 1.11 times of subscription, and the allotment holders were highly concentrated. This also explains why ChaBaidao had the motivation to manipulate IPO subscriptions.

The market soon voted with its feet. On the first day of listing on April 23, 2024, ChaBaidao's share price broke the issue price at the opening, with an opening drop of 10.06%, the maximum intraday drop of 38.29%, and closed at HK$12.8, down 26.86%, with a market value evaporation of about HK$7 billion in one day.

There are divergent views in the market on what will happen after this trading suspension.

A sell-side analyst who has long focused on the Hong Kong stock market told "Dingjiao One" that judging from the current accusations, it is unlikely that the incident will lead to ChaBaidao's delisting, but the involved institutions and individuals will most likely not escape punishment, and relevant individuals may even be prohibited from engaging in the industry.

However, some relatively pessimistic parties believe that ChaBaidao may eventually resume trading under certain conditions, but the possibility of delisting is greater.

Yuan Quan told "Dingjiao One" that in addition to facing regulatory penalties, ChaBaidao will most likely face claims from investors. In addition, the most powerful tool in Hong Kong's investor protection toolkit is Section 213 of the Securities and Futures Ordinance. As long as the SFC believes that a violation has occurred or is likely to occur, it can skip the tedious administrative hearing and directly apply to the court for a "restoration order", requiring violators to return the illegally obtained funds to investors in the original path.

No matter what the final conclusion is, it will be a heavy blow to ChaBaidao.

02. The new tea drink market where no "comeback" miracle will happen again

The trading suspension order has locked up not only the investigated "suspicious groups". Institutions and retail investors holding ChaBaidao's shares, as well as franchisees behind more than 8,000 franchised stores, have all been involved in the aftermath.

For investors, the loss is obvious. On the last trading day before the suspension, ChaBaidao closed at HK$4.035, and its total market value shrank from about HK$25.86 billion at the time of issuance to about HK$6 billion. This does not include the panic caused by the trading suspension. When trading resumes, the accumulated sentiment will be released intensively.

Regulators are not unaware of this cost. On September 24 this year, David Graham, Executive Director of Enforcement Division of the SFC, specifically talked about the issue of trading suspension in a speech. He said that in general, the SFC tends to give shareholders and investors the opportunity to trade, and ordering a trading suspension is a major measure, especially in the case of long-term trading suspension, which may cause serious practical consequences to investors, "these impacts cannot be underestimated". But he also pointed out that suspending trading itself cannot recover the losses that have been caused, but it is often the first step to seek real remedies.

Compared with investors, franchisees are in a more delicate situation. This incident is concentrated in the secondary market and does not involve the actual operation of the company. The material supply and daily operation of the stores have not been affected for the time being. But the above-mentioned Hong Kong stock analyst told "Dingjiao One" that if the incident eventually evolves into a large penalty or even delisting, it will directly affect the company's cash reserve and cash flow, and then transmit to the material prices, subsidies and marketing investment for franchisees, as well as brand reputation.

Image source / ChaBaidao official website

Putting aside this black swan event in the capital market, looking back at ChaBaidao itself, its operating conditions are not as stable as the figures in the report show.

The 2026 semi-annual report shows that ChaBaidao achieved operating revenue of 2.655 billion yuan in the first half of the year, a year-on-year increase of 6.2%; net profit attributable to owners of the parent company was 336 million yuan, a year-on-year increase of 3.2%; adjusted net profit was 348 million yuan, and adjusted net profit margin was 13.1%. The figures are relatively stable, but hidden worries lie in the revenue structure.

About 95% of ChaBaidao's revenue comes from selling raw materials, packaging materials and equipment to franchisees. In essence, it is a supply chain company attached to the franchise system. The growth of this model is highly dependent on the continuous expansion of store scale, but the scale is losing momentum. In the whole year of 2025, 1,218 franchisees terminated their cooperation, with a churn rate of 17.06%, which is among the highest among listed peers. In the first half of 2026, nearly 500 more franchisees terminated their cooperation. The company makes money by selling goods to franchisees. When the growth rate of franchisees starts to shrink, the foundation of performance growth will also loosen accordingly.

The quality of growth in the first half of the year is also questionable. The revenue from goods and equipment sales in the period was 2.524 billion yuan, a year-on-year increase of 7.0%, of which equipment sales revenue was 267 million yuan, a sharp year-on-year increase of 450.3%, mainly from the demand for coffee machine deployment brought by the expansion of the new coffee business. This shows that a considerable part of the growth momentum in the first half of the year came from one-time income such as selling coffee machines, and its sustainability is in doubt.

This is precisely the key to understanding the fate trend of ChaBaidao and Luckin Coffee.

When Luckin Coffee was delisted, more than 4,000 stores were operating normally; by 2025, its revenue reached 49.288 billion yuan, with more than 31,000 stores, of which about 20,000 were self-operated stores. More than 99% of ChaBaidao's stores are franchised, and the stability of operation depends on the confidence of thousands of franchisees.

In terms of situation alone, Luckin Coffee in 2020 was far more dangerous than ChaBaidao today: ChaBaidao's problem lies in the offering process, while Luckin Coffee had real data fraud at the operating level. But after Luckin Coffee was delisted, the store operation was not interrupted. The company cut off the founding team at the first time, stabilized the basic operation with the direct operation system, and caught up with the explosive growth of the ready-made coffee market, finally completing the Jedi comeback.

It is difficult for ChaBaidao to replicate this path. Under the franchise model, the company's "cutting ability" is not in its own hands, but depends on the confidence of thousands of independent franchisees. As long as a single store can still make a profit, franchisees will stay. Once their confidence is shaken, the shrinkage will be a chain reaction. At the moment when the industry growth has peaked and competition has intensified, the blow to confidence caused by trading suspension will be magnified once it falls on any weak link.

For ChaBaidao, it has neither got the script of fraud and delisting that Luckin Coffee had, nor will it most likely get the script of making a comeback. What it has to face is a market where there is no miracle to wait for.

This article is from WeChat official account "Dingjiao" (ID: dingjiaoone), written by Wang Hanxing, edited by Wei Jia, and published with authorization from 36Kr.