Miniso partners with Yonghui Superstores.

Investor's Network - Xie Yingjie.

Its retail business is thriving, Miniso Co., Ltd. (hereinafter referred to as "Miniso", NYSE: MNSO) has made a move to acquire the loss-making offline retail giant.

On the evening of September 23, Miniso announced that it will acquire 29.4% equity of Yonghui Superstores Co., Ltd. (hereinafter referred to as "Yonghui Superstores", 601933.SH), becoming Yonghui's largest shareholder. After the completion of the transaction, Miniso will not control Yonghui's board of directors, will not consolidate financial statements, and will account for this investment using the equity method. It is expected that this transaction will be completed in the first half of 2025.

The market's reaction to the above transaction shows a polarized trend, with Miniso's market cap plummeting by over a hundred billion Hong Kong dollars in a day, while Yonghui Superstores hits the limit up.

Polarization in the secondary market

On the evening of September 23, Yonghui Superstores and Miniso both issued announcements on the Shanghai and Hong Kong stock exchanges, signaling a major change in Yonghui Superstores' largest shareholder. The announcement revealed that Miniso plans to acquire 29.4% of Yonghui Superstores' shares for approximately 6.3 billion yuan.

Miniso's announcement indicates that after the completion of this transaction, Miniso is expected to become Yonghui Superstores' largest shareholder, further expanding its offline retail presence.

Yonghui Superstores announced on the same day that on September 23, Juncai International signed a Stock Purchase Agreement with jd.com and Suqian Hanbang, intending to acquire approximately 0.367 billion shares of the company's shares held by jd.com and approximately 0.388 billion shares of the company's shares held by Suqian Hanbang. After the completion of this transaction, the largest shareholder will change to Juncai International, holding a total of 29.4% of the shares.

After a day and night of public opinion fermentation, the market mostly believes that for Miniso, this deal is not profitable, and may even become a drag on the company. Bank of America Global Research Department downgraded Miniso's rating from 'buy' to 'underperforming the market', citing increased risks in the near term.

According to the research report, "Although we still believe in Miniso's bright prospects in its core business, the issues brought about by the Yonghui Superstores transaction are more than answers, as large-scale activities in the domestic major supermarkets are facing interruptions due to a weak macroeconomic situation, increasing the company's risk exposure."

In the secondary market, there is a polarized trend in the market towards the transaction. After the announcement of the acquisition, on September 23, Miniso closed at $13.72 on the US east coast, down 16.65%; as for the Hong Kong market, Miniso closed at HK$25.05 on September 24, plummeting 23.86% on the same day.

Yonghui Superstores hit the daily limit up on September 24, rising by 10.22%, closing the day at $2.48 per share, with the stock price still maintaining a high level after the phase.

Yonghui Superstores incurred a net loss of 7.8 billion in three and a half years.

With an investment of 6.27 billion yuan in entering Yonghui Superstores, what is Miniso's intention? What are the attractions of Yonghui Superstores?

Public information shows that in 2010, Yonghui, known as the 'number one fresh stock,' went public on the A-shares market. In 2015, jd.com acquired 10% of Yonghui Superstores' equity for 4.31 billion yuan. In 2017, Tencent invested in Yonghui at a price of 8.81 yuan per share, which was once seen as a symbol of the competition for 'AT new retail' in the industry.

In the wave of new retail and consumption upgrade, Yonghui Superstores has also started a "top-down" reform, investing heavily in community stores called "Yonghui Mini". The arrival of the epidemic has declared the failure of the reform that was already in the exploration stage.

In 2020, Yonghui Superstores revenue was 93.199 billion yuan. After three consecutive years of decline, the revenue in 2023 was 78.642 billion yuan. In 2020, the net income was 1.794 billion yuan. From 2021 to 2023, there were losses of 3.944 billion yuan, 2.763 billion yuan, and 1.329 billion yuan respectively.

In the first half of 2024, Yonghui Superstores revenue was 37.779 billion yuan, a year-on-year decrease of 10.11%. The net income was 0.275 billion yuan, a year-on-year decrease of 26.34%.

Yonghui Superstores stated that the retail competition situation is very severe, with a certain degree of decrease in the company's traffic and average customer spending. The company proactively closed underperforming stores, leading to an overall decline in revenue compared to the same period last year. However, the company has actively learned from excellent peers, set up special funds, and proactively improved quality and service.

Currently, Yonghui Superstores is shrinking its frontlines. In 2023, Yonghui Superstores added 5 new stores but closed 62 stores. By the end of 2023, there were a total of 943 open stores covering 29 provinces and municipalities directly under the central government. There were 86 signed but unopened stores, with a reserved area of 0.6553 million square meters.

Entering 2024, in just the first half of the year, Yonghui Superstores added 5 new stores but closed 62 stores, resulting in a net closure of 57 stores. Compared to the net closure of 57 stores throughout 2023, the speed of store closures by Yonghui Superstores has significantly increased this year.

While the performance is deeply mired in losses, Yonghui Superstores' debt ratio is also high. Since 2020, the company's debt ratio has been above 80%. In the first half of 2024, the debt ratio reached 87.06%, including short-term liabilities of 4.4 billion yuan, current liabilities due within one year of 2.194 billion yuan, lease liabilities as high as 19.2 billion yuan, while cash and cash equivalents were only 5.06 billion yuan.

Planning to create the "Chinese version of Sam's Club"

As the performance slumps, the share price of Yonghui Superstores has experienced downward fluctuations. Since 2024, the stock price once fell to 2.08 yuan per share, hitting a new low in nearly a decade, which is about 80% lower than the price of 11.03 yuan per share in 2020.

In recent years, the company has been continuously exploring digital transformation, rejuvenating the organization, building own brands, deeply cultivating the supply chain, until encountering Pinduoduo in the first half of 2024, everything seems to have reached a turning point.

Up to now, Yonghui has completed the transformation of two stores in Zhengzhou Xinwan Plaza and Zhengzhou Hanhai Haishang. Not long ago, Yonghui disclosed that the daily income of the two transformed stores has doubled, covering operating costs and achieving profitability. In the future, Yonghui will also start store transformations in ten cities including Beijing, Hefei, Hangzhou, Shenzhen, and Shenyang.

Since the beginning of this year, trends such as "internal competition, price wars, and cost reduction for efficiency" have been intensifying. Pinduoduo's supermarket, which is located in two lower-tier cities in Henan, is becoming increasingly popular. The transformed Yonghui by Pinduoduo has achieved breakthroughs in sales and customer traffic in multiple dimensions.

Sam's Club, which has swept China, is a high-end membership-based store under Walmart. As of now, Sam's Club has a total of 48 stores in China, spread across 24 cities. Its core business success lies in "membership system," "selective commodities," and "own brands".

Miniso stated that this acquisition will not affect the five-year development plan and targets announced earlier this year, and will maintain the full-year growth target for 2024 unchanged. At the beginning of 2024, Miniso announced plans to add 900-1100 stores annually in the next five years, with a compound annual revenue growth rate of not less than 20%.

After the investment, Miniso will leverage its advantageous experience in developing own brands to assist Yonghui in better developing own brands. In the first half of 2024, Yonghui's own brand achieved sales of 1.28 billion yuan, accounting for only 3.4% of its revenue. In return, Yonghui will supplement Miniso with fresh categories, among others. (Produced by Sina Finance)■