(Yicai) March 11 -- Shares in Nayuki Holdings tumbled after the Shenzhen bourse yesterday removed the company from the list of stocks eligible to be part of the Hong Kong Stock Connect, which allows mainland investors to trade its shares. The move came soon after the Chinese modern tea chain warned of losses of up to USD133.7 million last year.

Nayuki’s share price [HKG:2150] closed up 1.5 percent at HKD1.32 (USD0.17) today .Earlier in the day it slumped 7.6 percent to HKD1.20. Since the beginning of the month, the stock has lost nearly 40 percent of its value.

Nayuki is bracing for an adjusted net loss of between CNY880 million (USD121.4 million) and CNY970 million (USD133.7 million) in 2024, a sharp turnaround from making a profit last year, the Shenzhen-based firm said in its earnings forecast released on March 7. The losses are mainly due to weak demand and stiff competition, which has squeezed profits.

As the first modern Chinese tea brand to go public, Nayuki has been struggling financially ever since it listed in 2021. It turned a profit for a brief period in 2023 before slipping back into the red last year.

Nayuki mainly uses a direct sales model, which means higher costs. Meanwhile, competitors like Mixue Ice Cream and Tea, Cha Panda and Goodme rely primarily on franchises, which allows them to expand more quickly at a lower cost. These rivals all said in their initial public offering filings that over 90 percent of their business comes from franchises.

Due to a slowdown in market investments and greater difficulty in exiting investments, funds are focusing more on strategic emerging and tech-based businesses, a private equity investor from eastern China told Yicai. Investors are also comparing similar companies more closely.

This year, the listings of modern tea chains have been quite polarized. Zhengzhou-based Mixue broke records in Hong Kong in terms of the number of IPO subscriptions and yet Goodme saw its stock price drop below the issue price on its debut.

China’s new-style tea market is expected to reach CNY354.7 billion (USD49 billion) in 2024, according to market research firm iiMedia Research. The market is becoming more saturated, and growth is expected to stay at a modest but steady rate over the next few years.

Editor: Kim Taylor