Key points of investment
On August 30, the company released financial results for the second quarter:
1) Single Q2 revenue of 4.035 billion yuan (+24%), adjusted net profit of 0.625 billion yuan (+9.4%). The main reason for the year-on-year decline in adjusted net profit growth was exchange rate: 23Q2 exchange earnings were about 66.1 million yuan, and 24Q2 exchange loss was 4.2 million yuan. If the impact of exchange gains and losses were excluded, adjusted net profit was +24.6% year-on-year. The company is steadily advancing its IP strategy. The Q2 gross profit margin reached a new high of 43.9% (+4.1pct year over year, +0.5pct month over month), and an adjusted net profit margin of 15.5% (-2.1 pct year over year, -1.1 pct month over month).
2) In the first half of the year, revenue was 7.76 billion yuan (+25%), and adjusted net profit was 1.24 billion yuan (+18%). In the first half of the year, the company was able to increase 7% compared to same-store sales, and the number of stores increased by 19%.
MINISO Overseas: Direct management is growing steadily, and overseas localization is still in the early stages 1) Q2 and H1 overseas revenue of 1.51 billion yuan (+35%) and 2.73 billion yuan (+43%), respectively. By the end of Q2, MINISO had 2,753 overseas stores, accounting for 40% of all department stores. There was a net increase of 157 in Q2. Looking at the breakdown, Asia (excluding China), Latin America, Europe, North America, and other regions had net increases of 82, 21, 7, 43, and 4, respectively. H1 added a total of 266 overseas companies, making steady progress towards the goal of net opening 550-650 businesses throughout the year.
2) Company growth depends on overseas, and overseas growth depends on direct management: H1 overseas agents and overseas direct sales revenue were +19% and +70%, respectively. Among them, since 23Q1, the revenue growth rate of overseas direct sales has remained above 70% for 5 consecutive quarters, and may subsequently enter a steady growth stage. ① The US is the most watched direct market, and H1 growth is mainly driven by opening stores, +50% number of stores, and +12% same-store sales. In December of last year, there were only 118 stores in the US. In August of this year, the 200th store opened at Santa Monica, a famous attraction in Los Angeles. A total of 82 stores were opened this year, with stores spread across 40 states in the US. We believe that as the size of US stores expands, operating leverage is expected to gradually release profit margins. ② As another important direct market, Indonesia is also in a stage of rapid development. At the end of 23Q3, there were only 237 stores, and at the end of 24Q2, MINISO's largest store in the world will also land in Indonesia on August 31.
3) IP aggregation stores continue to perform well in countries around the world. Q2 The two stores in Ecuador launched BT21 co-branded products, with a total first-day performance of 0.88 million yuan. An old store in Guatemala was renovated, and the big IP helped the store reach 0.54 million yuan in sales on the first day. The flagship store on the Champs-Elysées in France performed nearly 0.58 million yuan on the first day, setting a new overseas single-day performance record. Peru's BT21 LARCOMAR theme store's first-day performance broke 0.56 million yuan...
MINISO Mainland China: The same store is being repaired, and the IP co-branding barrier continues to deepen1) Mainland revenue of 2.31 billion yuan (+18%) in Q2, slightly exceeding the company's previous expectations (domestic growth of 10-15%). Domestic growth is mainly driven by store openings. 81 stores were opened in Q2 alone, and about 61% of new stores were located in Tier 1 and 2 cities. H1 Mainland revenue of 4.59 billion yuan (+16%), with a cumulative net revenue of 189 companies, is expected to achieve the target of 350-450 net sales for the whole year. H1 Mainland same-store sales fell 1.7% year on year, mainly due to a 2.5% drop in customer traffic compared to the same period last year.
2) In the second quarter, major domestic co-branded products were introduced: MiniSo×Chiikawa, which expanded from pop-up stores in Shanghai and Beijing to nationwide sales. Stores in many parts of the country experienced a boom in consumer queuing. While sales of Chiikawa co-branded products were booming, sales of other products in the store were also driving sales of other products in the store. We believe that the future growth momentum of MINISO's domestic business may come from: first, the layout of the instant retail business, and the other is the exploration of various new store types. ① Instant retail. Facing changes in the domestic consumption situation, the company is speeding up the layout of offline stores to enable instant retail business. According to a late LatePost report, MINISO currently has more than 200 warehouses in China. These warehouses do not directly target consumers, but are connected to instant retail platforms such as Meituan, where consumers place orders online and deliver offline hourly. ② New store type. Since the second quarter, MINISO LAND, Miniso x Little Bear Pop-Up Stores, etc. have successively launched in Tier 1 and 2 cities such as Tianjin, Xi'an, and Shanghai to serve the differentiated needs of consumers in terms of product structure and store positioning.
3) Currently, competition on domestic IP co-branded circuits is becoming more and more intense, but we believe that Mingchuang Premium still has the industry's TOP-level IP operation capability and quality. First, IP co-branding is not a simple business of “signing IP - manufacturing - sales”. It includes a series of important aspects such as understanding the IP image, secondary development of a gallery, and marketing campaigns. Finally, the core of the product presented to consumers on the terminal is that it has sufficient product power, and in the current internal volume environment where competitors are rapidly following up, product strength is also reflected in differentiation. From the recent Chiikawa 2.0 and Little Bear pop-up stores, MINISO has shown the characteristics of “no one has the game, and the IP image is superior.” In fact, we have reviewed the launch time of some popular IPs in the domestic market since 2022, and the time when MINISO launched related names is very close to that. They have a keen grasp of hot topics and are quick to respond. We believe this is one of the important signs of the company's IP operation capabilities.
TOP TOY
1) TOP TOY has been making positive profits for three consecutive quarters. The revenue for Q2 was 0.215 billion yuan (+24%), and the net profit for Q2 alone was 35, and the current number is 195. At the first quarter results meeting, the company proposed to raise the target number of stores from 50 to 100, and is expected to reach 250 stores by the end of the year.
2) TOP TOY's brand power is rising steadily, and its trendy gaming platform attributes are prominent. According to our incomplete statistics, in May and June of this year alone, TOP TOY has collaborated with more than 20 IPs and launched new products. On June 16, TOP TOY's 30 stores across the country exclusively sold the “Oh Cub” vinyl face blind box, which set off a trend in the fun world, and once again, consumers lined up at night. The original price of this product was 129 yuan/box, but on the first day of sale, the price on second-hand trading platforms had already been raised to 400-3000 yuan or more.
3) The gross margin of self-developed products is about 60%, which currently accounts for more than 35%. The company proposed a target of 70%. As the share of these products increases, TOP TOY's profit still has a lot of room to increase.
Profit forecasting and valuation
We expect annual revenue of 17.3, 21.3, and 25.6 billion yuan for 2024-2026, +25.0%, 23.4%, and +19.7% year-on-year. Among them, MINISO's revenue in mainland China was +14%, +9%; MINISO's overseas revenue was +43%, +40%, +30%; and TOP TOY's revenue was +45%, +51%, and +28% year-on-year.
The adjusted net profit is estimated at 2.85, 3.66, and 4.47 billion yuan, or +21%, +29% year-on-year. As of the close of trading on August 30, the corresponding PE for the 24th calendar year was about 13X, maintaining a “buy” rating.
Risk warning
Risk of rising tariffs, risk of domestic consumption falling short of expectations, risk of IP sales falling short of expectations.