Nayuki Rediscovers Its Chinese Roots With Low-Key Name Change (NYKHF)

Nayuki or Naixue?

That’s the question that has the premium tea world buzzing these days, as one of China’s leading bubble tea chains appears to be struggling with a sort of identity crisis involving its name. We’re being a little cheeky here, as obviously Nayuki Holdings Ltd. (OTCPK:NYKHF) (2150.HK) knows exactly what it’s doing with its name, even if it’s not making public statements about it.

In this case, the name issue isn’t trivial either. Nakyuki sounds distinctly Japanese, and the company almost certainly picked the name in an attempt to make consumers think it was a Japanese brand, which are generally considered higher quality than their Chinese counterparts. By comparison, Naixue is simply the pinyin spelling for the company’s Chinese name.

So, why would Nayuki, or Naixue, make such a major shift in such a low-profile way? The answer probably lies in politics, which are never far from the surface in China’s business realm. In this case, at least two other high-profile Chinese companies were attacked by Chinese nationalists earlier this year for similar pretensions at Japanese connections.

Accordingly, Nayuki/Naixue’s move looks designed to avoid similar controversy. Assuming the move is really happening, it’s also understandable that Nayuki would want to keep things low-profile to avoid drawing attention to its “misguided” pretensions at looking Japanese.

We should commend the company for taking such a proactive step, since it’s far more common to see Chinese companies ignore such trouble signs until a crisis has already erupted, at which point it’s obviously too late.

All that said, we’ll review what has actually happened, as well as some of the other cases that prompted Nayuki to take its step. The company’s shares have actually rallied quite a lot recently, gaining 77% since late October. While it’s unlikely that all of that is related to this name change, at least some of it could represent investor applause for the company’s proactive move.

The naming matter came to public attention late last month when a person in the southern city of Nanning noticed a local shop had changed its pinyin name to Naixue, and had dropped a gimmicky Japanese character from its Chinese name and replaced it with a Chinese equivalent. The person posted a photo of the new store signage on the popular Xiaohongshu social media site, which got everyone talking.

A media report said Nayuki representatives weren’t commenting on the matter. The company’s Weibo social media account is now officially labeled with the Chinese character instead of the Japanese one.

There’s also a hint of something going on behind the scenes in the labeling of the company’s official stock market announcements. While it continues to use the Nayuki name in English, it quietly shifted from use of the Japanese character in its third quarter business update issued Oct. 21 to the use of the Chinese character in its most recent filing this week announcing its purchase of 44% of rival Lelecha for 525 million yuan ($76 million).

Gradual rollout

The media reports indicate Nayuki’s name change is being rolled out gradually to the nearly 1,000 Nakyuki teahouses throughout China. Our check of a store from our base in Shanghai showed it was still using the old Japanese-style name, which could indicate that perhaps the new signage is rolling out first in smaller markets and could eventually make it to the largest cities like Shanghai.

After all, the Japanese association is probably much more important in major markets like Shanghai, where people really do associate Japanese products more closely with high quality than in smaller markets.

The company currently uses naixue.com as its official Chinese homepage, though its main English page is still at na-yuki.com. All this seems to show that the name change is probably happening, at least at some level, even if the company will retain the older version for some purposes.

Such a shift looks prudent in the current climate, following the two scandals that we mentioned earlier. The first occurred in late July, and involved the chain of retail stores operated by Miniso Group Holding Ltd. (MNSO; 9896.HK).

We’ve often poked fun at the company for being a knockoff of famous Japanese stores like Muji and Uniqlo, and the chain also uses an element that looks like a Japanese character in its logo.

The brouhaha began when the company’s Spanish Instagram account featured a doll labeled as a Japanese geisha. But some online Chinese nationalists were quick to point out the doll was actually wearing a traditional Chinese-style qipao dress, and not Japanese clothing, despite the label.

That just drew more attention to Miniso’s efforts to appear Japanese, and the company’s stock took quite a beating before it apologized and promised to take “corrective action.”

The second incident occurred in October when sportswear brand Li Ning (OTCPK:LNNGF) (2331.HK) got tripped up over a hat design in its winter clothing line, which online nationalists said looked similar to hats worn by Japanese fighter pilots during World War 2.

That incident, which also took a toll on Li Ning’s stock, was notable because Li Ning was one of China’s earliest Olympic gold medalists in gymnastics, and himself is a symbol of national pride.

With the risk of such nationalist attacks in the background, it’s not too surprising that Nayuki might be taking steps to lower the chances of coming under similar attack by shifting to its Chinese name. And the low-profile nature of the shift is also quite understandable, as the last thing the company wants to do is draw attention to its previous attempts to look Japanese.

We’ve already noted the recent run-up in Nayuki’s stock could be partly due to the name change. But even after those gains, the company is still relatively undervalued compared to its peers.

It now trades at a price-to-earnings (P/E) ratio of just 13, compared with much higher figures of 54 and 33 for domestic rivals Xiangpiaopiao (603711.SH) and Luckin (OTCPK:LKNCY), respectively, and a 36 for global coffee giant Starbucks (SBUX).

Disclosure: None

Original Post

Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.