Key points of investment:

A global lifestyle retailer with IP as its highlight. Mingchuang Premium is committed to providing lifestyle and home products with IP design characteristics. It has incubated two major brands, Miniso and TOP TOY. By 2021, Miniso's share of the global and Chinese private brand retail market reached 6.7%/11.4% respectively, all ranking first in the industry. TOP TOY had a market share of 1.1% in the domestic trendy toy market, ranking 7th. By mid-2024, the company had opened 7063 offline stores worldwide.

Our own retail model incubates two major brands, MINISO & TOP TOY: 1) The core brand creates premium products: It is a general category home and lifestyle brand, focusing on “price/performance+IP” specialty retail, providing 11 categories of daily necessities such as home, small electronics, bag accessories, beauty tools, toys, personal care, etc. An average of 530 SKUs were launched every month during FY2023. The core SKU product portfolio was about 9,700, and established brand partnerships with 80+ IP licensors such as Disney and Marvel. 2) Trendy Play Brand TOP TOY: The second brand born in 2020, strives to build the world's leading trendy toy building block dream factory. We create our own products through our own IP development and joint branding, covering 8 categories including blind boxes, building blocks, figures, and assembled models.

The trendy game market is “one super strong”, and TOP TOY has the 7th largest market share. According to Frost & Sullivan data, the CR5 of the 2021 trendy toy market under the GMV caliber was 26.4%, and the market concentration was low. Among them, Bubble Mart quickly broke the circle with a mature IP blind box operation model, leading the industry with a GMV of 4.7 billion yuan and a market share of 13.6%. The market share of international trendy toy brands LEGO, Hot Toys, and Bandai reached 7.5%/2.8%/1.4%, respectively. TOP TOY entered the trendy game industry in 2020, and its rapid development in just one year has already seized 1.1% of the market share, ranking in the TOP7 market share in the industry.

Overseas markets are flexible, and agents are used to enter the local market. The company early entered new markets with an agency model and localized operation, promoted the rapid adaptation and localization of brands in the local market, effectively regulated risks on a large scale, and reduced operating costs. As of June 30, 2024, the number of overseas stores had reached 2,753, of which the number of direct-managed/partnership/agency stores reached 343/338/2072 respectively, with an average annual net increase of nearly 200 stores over the past 4 years. With the strong expansion of overseas stores, FY24's overseas revenue reached 5.521 billion yuan, an increase of 44.45%.

Profit forecasting and investment advice: Mingchuang Premium is the leading IP retailer, backed by a high-quality domestic supply chain, and supports rapid growth with global design and channels. Relying on flexible store layout and high profit margin attraction, there is plenty of room to open stores at home and abroad in the future, and there is still plenty of momentum to climb the slope and improve store efficiency. We expect the company to achieve revenue of 16.572/19.031/21.161 billion yuan in 2024-2026, an increase of 20%/15%/11%, and net profit to mother of 2.88/3.321/3.715 billion yuan, an increase of 28%/15%/12%, and corresponding PE 14/12/11 times in 24-26, respectively. Choosing the core targets of domestic and international trendy games and retail, such as Bubble Mart and DOLLAR TREE, as comparable peers, we believe that there is still room for improvement in the valuation of Mingchuang Premium Products, and for the first time, it has been covered and given a “buy” rating.

Risk warning: Global store expansion falls short of expectations, weak consumer demand, supply chain and market risks, product development risks