By LIU Xiaohan

Premium bubble tea chain Nayuki has been given the nod to press on with its IPO on June 6, nearly four months after it was announced.

An updated prospectus suggests Nayuki has had five rounds of financing. According to the International Financing Review, the bubble tea chain is expecting to make HK$3.9 billion (3.2 billion yuan or US$500 million) from the IPO and will start roadshows next week.

Nayuki has 556 stores in China, 90 percent in first-tier cities. While the prospectus said Nayuki will continue to expand, it is struggling to turn a profit. Last year, the profit margin dropped from 25 percent to 12 percent.

The average price of a cup of tea from Nayuki is 27 yuan, twice as much as many other bubble tea chains, but the strategy has not worked. The prospectus said from 2018 to 2020, losses increased from 69.7 million yuan to 203 million yuan.

The reason? Heavy labor costs and pricey ingredients, which make up almost 70 percent of Nayuki’s price. Starbucks, Nayuki’s suggested competitor, keeps costs under 30 percent. Nayuki is well aware of the problem and plans to open 300 new stores before 2023, 70 percent of which will be Nayuki Pro –  smaller takeout shops that require less manpower.

Another factor contributing to Nayuki’s loss could be its failed attempt to open markets in lower-tier cities. In 2016, Nayuki opened Taigai, a cheaper version (16 yuan per cup) of pretty much the same product. While 16 sounds a lot cheaper than 27, the average price of bubble tea is 13 yuan. So far, there are only 24 branches of Taigai in nine cities.