We use a discounted cashflow (DCF) methodology to value Chagee, given the company's development stage (with earnings likely weighted towards future periods), cyclical SSSG velocity, sustainable long-term growth outlook, strong operating efficiency record which should underpin that sustainable growth, and certain challenges with HK/China peer valuation metrics. We forecast Chagee’s free cash flow up to 2035E and discount back to end-2025E. We use a beta of 1.14 in our WACC calculation. With a 15.9% WACC and 3% terminal growth rate, we arrive at a DCF-derived target price of US$35.4. Our target price implies 17.2x 2025E P/E.

We rate Chagee shares as High Risk given their relatively short trading history (IPO in April 2025) as well as the impact of the risk factors cited below. Key downside risks that could prevent the shares from achieving our target price include: (1) intense industry competition, with many freshly-made tea drinks and other beverage outlets vying for consumers; (2) limited operating history, as the company commenced its operations in 2017 and has grown  rapidly in recent years; (3) the challenges of catering to evolving consumer preferences and tastes; (4) management of franchise partners; (5) lack of a formal dividend policy or fixed dividend distribution ratio; and (5) uncertain macro environment and risks to consumer demand in a scenario of slowing economic growth in China.