The company provides cost-effective consumer products. The Group's global network of more than 7,000 stores spread all over the world, providing cost-effective products based on interest consumption. It is mainly divided into two major brands: MINISO and TOP TOY. As of June 30, 2024, the company MINISO had 6868 stores worldwide, and the number of TOP TOY stores reached 195. The company sells more than 0.01 million SKUs, and introduces more than 900 new SKUs per month. The average price of 24H1 domestic MINISO products is 14.2 yuan. They are cost-effective consumer products. The company actively expands interested consumer users in vertical fields through IP co-branding and a rich supply chain. While the products are cost-effective, the products are differentiated.

The company announced a 5-year plan, which expects the 2024-2028 revenue to be no less than 20% and the store network to double. At the beginning of 2024, the company released a five-year strategic plan, which proposed goals for network expansion, revenue targets, and product upgrades. The company plans a net increase of 900-1100 stores every year from 2024-2028. The number of global stores at the end of 2028 is nearly double compared to the data at the end of 2023; the compound growth rate of the Group's revenue in 2024-2028 is not less than 20%; and IP products account for more than 50% in 2028.

Product upgrades and overseas expansion drive the company's profitability to continue to increase FY2021-CY2024H1. The company's adjusted net interest rate increased from 5.9% to 16.0%. The net margin increase was mainly driven by an increase in gross margin, and the FY2021-CY2024H1 company's gross margin increased from 26.79% to 43.7%. The increase in gross margin is mainly due to: (i) the optimization of products in overseas markets and the increase in the revenue ratio of direct sales markets, which contributed to the increase in gross margin of overseas business; (ii) the increase in revenue share of IP products to improve the gross profit margin of domestic business; and (iii) improvement in the profitability of TOP TOY.

Supply chain advantages, channel upgrades, and product upgrades help the company develop the company's long-term growth mainly depends on the following three factors: same-store sales, store expansion, and profit margin improvement.

1) Same-store sales are determined by transaction order volume and customer unit price. We believe that store upgrades and IP strategies are a feasible path to improve same-store sales.

2) In terms of store expansion, there is still plenty of room for domestic channels to sink. Asset-light franchise methods and good profit margin levels for franchisees provide a guarantee for continuous and steady store expansion.

Overseas store expansion has entered a period of acceleration. Both the agency market and the direct sales market have incremental market exploration, and the European and American markets have room to more than double in the next five years.

3) In terms of profit margins, we believe that strengthening supply chain capabilities, advancing IP strategies, and optimizing overseas models are important drivers for increasing profit margins.

Investment advice

We expect the company's revenue in 2024-2026 to be 17.3/20.8/24.3 billion yuan, +25%/21%/17%, net profit to mother of 2.67/3.44/4.19 billion yuan, +19%/22% YoY, EPS of $2.12/2.73/3.32, referring to the closing price of HK$33.05 per share on September 27, 2024, with an exchange rate of HKD1 = 0.93 yuan. The corresponding PE is 14x/ 11x/9x, first coverage, giving the company an “gain” rating.

Risk warning

1) IP product expansion falls short of expectations; 2) industry competition intensifies; 3) The overseas expansion process falls short of expectations.