June 12, 2019 / 10:26 AM / a month ago

BUZZ-Luckin Coffee: Morgan Stanley brews an 'equal-weight' rating, $21 PT

** Morgan Stanley initiates coverage of Chinese coffee chain Luckin Coffee with an ‘equal-weight’ rating and PT of $21

** PT implies a ~19% upside from Tuesday’s close of $17.60

** MS says it likes LK’s unique store format, product pricing and fast expansion capacity but thinks that “valuation looks fair”

** Brokerage expects Starbucks’ Chinese rival LK to grow sales by 30x in 2018-21 driven by store expansion, strong consumer growth, increase in purchase frequency and ASP growth

** This growth in MS’ view will be underpinned by increasing adoption of coffee-drinking by younger generation and urbanization

** “But near-term upside seems limited on relatively low earnings visibility,” MS wrote in a note

** High level execution risk, intensifying competition or changes in consumer tastes could increase earnings volatility according to brokerage

** On market debut in May, LK’s stock opened 47% higher over its $17 IPO price and rose as much as 52.7% to a high of $25.96

** Up to Tuesday’s close, stock has risen ~3.5% since debut vs SBUX’s ~4.4% gain for the same period (Reporting by Yadarisa Shabong in Bengaluru)

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