Key points of investment

The core logic of Mingchuang Premium?

Mingchuang Premium is a global household daily use retailer. The “IP+ retail” model opens up a ceiling of growth.

At the beginning of its establishment in 2013, it mainly sells high-quality and inexpensive lifestyle goods, focusing on the ultimate cost performance ratio. The path of internationalization began in 2015, and has successively entered more than 110 countries and regions around the world. In February 2023, a global brand strategy upgrade was officially proposed. It is positioned as a lifestyle brand featuring IP design, focusing on the “three best” products (good-looking, fun, and easy to use) around emotional consumption. Since the brand upgrade, the company's performance has been outstanding:

22H1-24H1's revenue CAGR was 29%, and adjusted net profit CAGR was as high as 93%. In the latest 24Q2, the company's revenue was 4.035 billion yuan, +24% year on year; adjusted net profit was 0.625 billion yuan, +9.4% year over year.

What are the company's core competencies/barriers?

We believe that Mingchuang Premium is the most IP savvy retail company and the most efficient in the IP field. Efficient supply chain+scale advantage+IP operation capabilities form the comprehensive soft power of the company's “IP+ retail”.

1) Efficient supply chain: Hot spots of interest in consumption are changing rapidly, and high turnover is an important barrier to widen the gap with competing products.

2) Scale advantage: With the scale advantage of more than 6800 stores around the world, Mingchuang Premium has reached cooperation with more than 100 well-known IPs around the world. Since high-quality stores are often exclusive, it is difficult for other competitors to quickly catch up with the number of stores.

3) IP operation ability: No one has me when it comes to IP gameplay, and everyone has my own advantage in IP image. 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, leading the industry in tapping potential IPs and creating differentiated products and gameplay. The previous Chiikawa flash, Barbie co-branding, and LOOPY co-branding all reflect the company's “IP+ retail” strengths.

What is the driving force behind the company's performance?

1) Overseas market openings and same stores are on the same page. Among them, the direct market is a performance accelerator.

① In terms of total volume, the share of overseas markets increased steadily: in 24Q2, MINISO's overseas stores accounted for 40% (up 2.3 pct from 23Q2), and overseas revenue accounted for 39.6% (up 3.2 pct from 23Q2), up 35% year on year. Among them, the revenue growth rate of overseas direct sales remained above 70% for 5 consecutive quarters from 23Q1-24Q1.

② In terms of opening stores, the US is speeding up: The company plans to open 550-650 net stores overseas in 24, and H1 has already opened 266 net stores, including a net increase of 151 in Asia (excluding China), a net increase of 62 in North America, a net increase of 32 in Latin America, and a net increase of 13 in Europe. Among them, the US is an important direct market. There were only 118 stores in December last year, and the 200th store opened in Los Angeles in August this year. A total of 82 stores were opened, with a total of 82 stores spread across 40 states in the US.

③ In the same store, the growth rate was maintained: 23Q4 and 24H1, the growth rate of overseas direct stores was 39% and 16%, and the growth rate of overseas agents was 13% and 16%. Under a high base, North America still achieved 49% and 12% same-store growth. Furthermore, although store performance was not very impressive in the past in the European and Asian markets, the company is actively boosting store efficiency by investing in agents, opening new direct stores, and introducing new IPs.

2) Continue to maintain the growth rate of domestic store openings.

In 24Q2, MINISO's domestic stores accounted for 60%, revenue accounted for 60.4%, and revenue increased 18% year-on-year. The company plans to open 350-450 net domestic stores in 24, and H1 has already opened 189 net stores, which has become the main driving force for domestic revenue growth.

Logic beyond expectations?

Quantitative metrics that can be tracked include domestic same-store data, sales performance of first IP stores, etc. In the short term, the peak overseas season in the fourth quarter, combined with the Harry Potter joint name, is expected to catalyze, and revenue and profits from the direct sales market are expected to exceed expectations. In the medium to long term:

1) Optimize the cost ratio of overseas direct sales markets and increase profit margins. Currently, there are only 200+ stores in the US. As the scale of stores expands and franchisees are added, headquarters costs are expected to be reduced, and there is still room for optimization of store rents and labor costs.

2) The sub-brand TOP TOY accelerates store opening. TOP TOY was born at the end of 2020 and specializes in 8 categories of trendy games.

Since 23Q4, it has achieved positive profits for three consecutive quarters, with 24Q2 revenue of 0.215 billion yuan (+24%), and there are currently 195 stores. The company proposed to raise the target of opening stores this year from 50 to 100, and is expected to reach 250 stores by the end of the year. In the medium to long term, TOP TOY is expected to form the Group's second growth curve, but currently the market has not fully valued TOP TOY.

3) Yonghui's performance is expected to exceed expectations after the adjustment. On September 23, the company announced the acquisition of 29.4% of Yonghui's shares for 6.27 billion yuan, which will be included in the joint venture investment project. Up to now, under Fat Donglai's restructuring, Yonghui's ability to improve performance has been fully demonstrated. After Yonghui's first self-regulated store in Beijing, the Shijingshan Xilongduo store resumed business on October 19, the number of visitors entering the store on the first day exceeded 0.05 million people, paying about 0.014 million people, and the total daily sales volume reached 1.7 million yuan, more than 6 times the average daily sales before the adjustment. This store is the 10th store that Yonghui has restructured, marking the official entry into the “double number era”. It is expected that at least 8 remodeled stores will open in November.

Profit forecasting and valuation

We expect annual revenue of 17.2, 21.3, and 25.6 billion yuan for 2024-2026, +24.5%, +23.9%, and +20.1% year-on-year. Among them, MINISO's revenue in mainland China was +12%, +9% YoY; MINISO's overseas revenue was +43%, +40%, +30% YoY; and TOP TOY's revenue was +50%, +61%, and +33% YoY.

The adjusted net profit is estimated to be 2.83, 3.59, and 4.37 billion yuan, +20%, +27%, and +22% year-on-year. As of the close of trading on October 29, the corresponding PE for the 24th calendar year was about 15X, maintaining a “buy” rating.

Risk warning

The risk of rising tariffs, the risk of domestic consumption falling short of expectations, the risk of IP product sales falling short of expectations, and the risk that Yonghui supermarket's rectification falls short of expectations.