Incident: On September 23, 2024, Mingchuang Premium announced the acquisition of shares in Yonghui Supermarket. The company plans to acquire 29.4% of Yonghui Supermarket's shares for 6.3 billion yuan, including 21.1% of Yonghui's shares held by Milk Company and 8.3% of Yonghui Supermarket shares held by Jingdong. After the acquisition is completed, Mingchuang Premium is expected to become the largest shareholder of Yonghui Supermarket.

Yonghui Supermarket is a leading domestic supermarket enterprise, and is steadily advancing the adjustment plan to improve the profitability of stores.

Yonghui Supermarket was founded in 2001 and listed on the Shanghai Stock Exchange in 2010. It is a supermarket chain operator specializing in fresh products. It specializes in large-scale integrated supermarkets, supermarkets and community supermarkets; in terms of sales scale, it has continuously ranked second in the top 100 supermarkets in China in recent years. As of September 23, '24, the total number of the company's stores was about 850, spread across more than 25 provinces and municipalities; in '23, the company achieved revenue of 78.64 billion yuan/yoy -12.7%, and net profit of 1.33 billion yuan/yoy +51.9%. Over the past 24 years, Yonghui Supermarket has taken the initiative to learn the high quality model of supermarkets such as Fat Donglai, and carried out closing reforms in many cities across the country to optimize the store's product structure, quality, price, store layout, environment, service and employee treatment, etc., to enhance store profitability. Up to now, Yonghui Supermarket has opened 3 regulated stores supported by Fat Donglai and 3 self-regulated stores, all showing good sales performance. For example, the first day sales of the first restructured store, the Zhengzhou Xinwan Plaza store, reached 1.88 million yuan on the first day of the change. 13.9 times; the first independent regulation in the country On the first day of opening of the Xi'an China Trade Plaza store, sales reached 1.5143 million yuan, about 7.6 times the average daily sales before the adjustment; the daily sales volume of the Fuzhou Jinshan Park Road store exceeded 1.1 million, an increase of about 5 times over the average daily sales before the adjustment.

This equity acquisition is expected to have a good synergy effect on the channel and product side. As for Mingchuang Premium, Yonghui Supermarket has 850 stores in China, spread across more than 25 provinces and municipalities across the country. Its huge sales network and supply chain are expected to increase Mingchuang Premium's investment and business channels in the retail business of daily necessities. For Yonghui Supermarket, Mingchuang Premium has been deeply involved in its own brand for more than ten years, and has rich management advantages and product teams, which is expected to help Yonghui Supermarket develop better independent brand products at a lower cost and enhance differentiated competitiveness.

Investment advice: In the short term, the company continues to open stores and expand its business layout, and the company's revenue is expected to show greater flexibility; in the medium to long term, competitive advantages such as “three good” products, high-quality supply chains, asset-light operating models, and globalization strategies will consolidate the company's leading position in the industry in many ways and help the company seize more market share.

We expect the company's adjusted net profit for the 2024-2026 natural year to be 2.828/3.487/4.167 billion yuan, respectively, up 20.0%/23.3%/19.5% year on year, with corresponding PE being 13X/11X/9X respectively; net profit to mother for the 25-26 fiscal year will be 3.114/3.813 billion yuan, up 28.8%/22.4% year on year, respectively, and corresponding PE is 12X/10X, maintaining the “recommended” rating.

Risk warning: Risk of fluctuations in overseas markets; store expansion falls short of expectations; brand upgrades fall short of expectations.