The Shenzhen-based company, known as Naixue in Mandarin, raised $656 million on June 24 after selling 257.3 million shares at HK$19.80, or $2.55 each. Shares were priced at the top end of Nayuki’s marketed range, giving the company a valuation of approximately $4.4 billion.

Nayuki controls nearly 20% of China’s premium teahouse market share and is the first upscale teahouse chain to be listed in Hong Kong—factors that led the market to predict a robust opening. But increased investor caution following Hong Kong’s first-half IPO boom hurt Nayuki’s debut, analysts say.

Don’t call it bubble tea

Founded in 2015, Nayuki operates 491 teahouses in mainland China and has one shop each in Hong Kong and Japan. Nayuki’s shops sell premium tea drinks, such as its signature cheese foam–topped fruit teas, and baked goods like garlic bread and custard-filled buns.

Nayuki is classified as an upmarket tea chain, given the price of its drinks—no less than $3—and its use of quality ingredients like fresh milk and in-season fruits, says China Insights Consultancy (CIC).

“I wouldn’t call it a bubble-tea chain,” added Toh Zhen Zhou, analyst at Aequitas Research who publishes on the SmartKarma platform.

Such a classification helped spark early investor interest in the company’s IPO, particularly on the retail side.

Nayuki’s retail issue was oversubscribed 400 times, according to local investment paper AAstocks.com. Meanwhile, the company attracted five institutional investors, such as UBS Asset Management and China Construction Bank.

The teahouse’s performance in its home market also appealed to investors. Nayuki controls nearly one-fifth of China’s competitive premium tea market after six years of operations. Only Nayuki’s Shenzhen rival HeyTea, founded in 2012, has a bigger market share at 28%.

The value of China’s fresh tea drink market is expected to surge to $52.6 billion by 2025. In 2020, it was worth $17.6 billion, according to CIC estimates.

Nayuki wants to take advantage of that growth with rapid expansion. Nayuki has opened 447 teahouses in the past three years, and it plans to open 650 more by the end of 2022.

Nayuki raked in $480 million in revenue last year, but it remains unprofitable; it recorded a loss of $31.4 million in 2020.

Disappointing debuts and new billionaires

Still, investor concerns about Nayuki’s sky-high valuation tarnished its first trading day. Nayuki priced its shares “aggressively” at a time when investors are particularly sensitive about valuation, says Zhou.

“Recent [listings] with expensive valuations and moderate revenue growth have failed to produce stellar day-one performances, despite decent retail investor interest,” says Oshadhi Kumarasiri, equity analyst at LightStream Research. Chinese firms like Bairong, a fintech company, and Cheerwin Group, a household goods platform, fizzled in their first days on the HKEX.

Overall, the Hong Kong exchange accrued a record $26 billion in IPO proceeds in the first six months of the year, despite a string of mediocre debuts and few blockbuster listings in the second quarter.

Even with Nayuki’s disappointing debut, the firm’s founders—Peng Xin and her husband, Zhao Lin—become billionaires in the IPO. Peng and Zhao each hold a stake worth $1.2 billion, according to Bloomberg data.