Luckin Coffee Inc. (LKNCY): Clear growth path in ML China with 55k stores attainable; upside from margins and shareholder returns; Initiate at Buy

研报英文原文证据摘录

Luckin Coffee Inc. (LKNCY): Clear growth path in ML China with 55k stores attainable; upside from margins and shareholder returns; Initiate at Buy

Goldman Sachs Luckin Coffee Inc. (LKNCY)

Key risks

Data privacy risks: The company could be exposed to data privacy and cybersecurity

risks due to its highly digital, app-first retail model, which processes massive quantities

of user data. For example, in Aug 2024, Shanghai cyberspace authorities summoned six

coffee brands (incl. Luckin) to rectify the illicit collection of consumers’ personal

information; in overseas markets, companies such as Tik Tok and Temu also face data

privacy risks. If Luckin were to face stricter regulation on data collection, its competitive

edge in digital operations could weaken.

Market competition risks: China’s freshly made drink market has always been highly

competitive. While Luckin has been a share gainer since it was founded and has been

resilient in the face of strong competition with Cotti, if aggressive/newly capitalized

players compete in expansion/pricing, Luckin could face market share and ASP/margin

pressure. Meanwhile, we note leading freshly made tea players are actively entering the

coffee market with affordable pricing to attract customers.

Pricing risks: If the industry competition becomes more intense and competitors adopt

more aggressive pricing, the company could see market share or margins decline. With

delivery subsidy normalization, if other competitor coffee brands raise their subsidies, it

could be a headwind to the pricing landscape and margin.

Raw material cost risks: Raw material inflation, particularly coffee beans and dairy,

could pressure Luckin’s GPM. Historically, Luckin’s margin has been resilient during