Luckin Coffee ☕

Luckin is a company I hadn’t heard of before. It had simply passed me by until the day I saw it in our rankings and asked if anyone had heard of the company before. It’s easy to forget there are thriving organisations which don’t operate in your own market, and it can be harder to keep track of them.

Thankfully @yuchen.xia gave me the footnotes as to why I should care. In short, aggressive, explosive growth. How fast you ask? Try 3,680 stores in two years (McDonalds opened 1,454 stores in the same period worldwide but Starbucks kept pace with Luckin and opened the same number of stores in China.)

The battle between Starbucks and Luckin Coffee in China has been brewing, with both companies driving innovation through their apps and in-store experiences (because coffee is still just coffee.)

But the milk is at risk of going sour now. New fraud allegations (not the first time for Luckin, rumours of pumping their footfall numbers have been ripe for a while now), have put a damper on the share price along with the lockdown in some Chinese provinces.

It seems bad news likes company, with the chairman of Luckin Coffee defaulting on the terms of a $518m loan from Goldman Sachs.

https://www.ft.com/content/d0c81e1b-88db-4609-aaa6-ec3a18af374f

However, the caffeinated and energised Chinese population do not want to see Luckin lose out to the foreign invader Starbucks.

This boost however, according to the TechCrunch article maybe in part related to customers redeeming vouchers over fears of the company going bust, rather than an increase in true full priced sales.

But enough about the news, what do the numbers tell us?

Luckin Coffee on paper is a very strong contender, I expect over the next few days the scores will change depending on the sentiment (affecting momentum) around the fraud. The high quality score means Luckin can afford a few scandals as long as they don’t have to keep reaching for the cheque book. Surprisingly, even with a global pandemic being served up, the company is cheaper than average looking at the value. However, this is all up for change if the future cashflow is adjusted.

Do you think Luckin Coffee is a lucky pick? Will we see Luckin showing up on the UK highstreet anytime soon?

We’ll watch the stories closely and see how it impacts the long term outlook.

3 Likes

I can’t invest in them now. Once bitten twice shy.

Looks like a good move @Codf!

Luckin Coffee has suspended trading. They are also at risk of being delisted. The allegations have come up true and they have illegally increased their figures and lied on their disclosures and returns.

You’ll still find Luckin in the app (based on the old figures until the stock is un-suspended with corrected figures, or they get delisted!)

Bloomberg have done an excellent write up on the lasting impacts of this on future Chinese IPOs in the US based exchanges (and potentially world wide, don’t forget there is ongoing work to open up UK and Hong Kong exchanges to each other.)

https://www.bloomberg.com/opinion/articles/2020-04-08/luckin-may-put-lasting-stain-on-chinese-inc-u-s-listings

The U.S. Public Company Accounting Oversight Board, which was set up as a watchdog for audit firms in the wake of Enron Corp.’s collapse, can’t access the books of Chinese companies because Beijing deems that data to involve sensitive state secrets.

A bigger, immediate, issue will be the lawsuits which can now follow.

According to Reuters (via Yahoo! Finance), Chinese regulators questioned Ucar about how the fraud allegations against Luckin Coffee would affect it. Ucar officials decided to halt trading in their stock to avoid abnormal price fluctuations.

We’ll follow the story and see what is next for Luckin Coffee. Between WeWork and Luckin Coffee, we are getting some high profile reporting issues.

2 Likes

Another blow for Chinese firms listed on foreign exchanges.

They disclosed the issue and turned the employee responsible over to the police.

1 Like

@Codf and I were mailing about it, we both concluded there are some interesting Chinese companies but the risk doesn’t seem worth it.

1 Like

Yeah beyond Tencent, JD.com and Ganfeng I find it really difficult to trust many of China’s giants. Too many (intentional) accounting errors not enough regulation.

2 Likes

It;s not over for Luckin yet.

Speaking of Chinese owned coffee chains.

Looks like Tencent wants to get in on the action. Going for an investment with Tim Hortons is an interesting choice. They have strong market share in Canada, meaning they can potentially bring their tech expertise into the company, or potentially help fund growth into China while potentially replacing the troubled Luckin.

Speaking of Luckin Coffee…

Still no information on when the stock will be tradeable in the US again.

After the fraud was announced there was a big spike in customers, but this has started to drop off. However it seems the company is now offering additional products via their app which are more lifestyle related than anything to do with coffee.

An interesting move.

range from beauty masks and hand soap to Apple Airpods and Beats headphones. Most of the non-beverage merchandise is third-party, except for a small collection of Luckin-branded items such as coffee mugs.

Seems like they are trying to keep their engagement and cash flow as high as possible, regardless the cost.

They have seen an increase in daily active users but the big boom wasn’t set to last.

Looks like NASDAQ have had enough.

Reuters reported overnight that Nasdaq has sent notice to Luckin Coffee that it intends to delist the company’s ADR shares from the exchange.

It seems there might be a wider crackdown coming.

A quieter scandal has been a similar accounting irregularity at TAL Education Group, a China-based tutoring company traded on NYSE. And then overnight, Muddy Waters, the same research firm that first brought potential fraud at Luckin Coffee to light, released a new report on GSX Techedu indicating potential fraud, accusations which were denied by the education company.

In new filings with the SEC, Nasdaq proposed amending its ruled to allow for tighter listing standards for companies based in a jurisdiction “that has secrecy laws, blocking statutes, national security laws, or other laws or regulations restricting access to information by regulators of U.S. listed companies.”

1 Like

If you have been following Luckin you would have seen very aggressive day gains over the last few days (50% and 20% single day increases.)

In what might be the high risk bet you can make, there are rumours of an acquisition. These rumours don’t seem to have a credible source but it does seem to be the only saving grace Luckin can hope for an investors and jumping on it.

This does remind me of the AIM pump and dump penny stocks.

Thus, owning Luckin Coffee stock right now is a high-risk endeavor. It could pay off handsomely if the beleaguered Chinese coffeehouse chain is acquired, but investors could also be completely wiped out if Luckin Coffee is forced to enter bankruptcy proceedings.

Even a risk that big is not enough for the investors earlier this year.

I bought 55 shares last week, as just a tiny gamble. Return has been crazy.

Mind you, not as good as rotating into Aston Martin and then TUI. Wish I had a crystal ball for those moves!

1 Like

Aston I see in a negative spiral, until there are actually meaningful changes that is hard short for me.

The airlines are way too hard for me to get involved in right now, it requires more attention that I can spare right now! Which as a day trader would be extremely fun but as an investor just too hot right now.

You planning on exiting Luckin or holding onto them for a buyout?

1 Like

As long as they go up, I’ll hold. :moneybag:

1 Like