Description of the event

On November 29, the company announced the results for the first nine months ended September 30, 2024. With 2024Q1-Q3, the company achieved revenue of 12.281 billion yuan, an increase of 22.8% year on year; achieved adjusted net profit of 1.928 billion yuan, an increase of 13.7% year on year; excluding exchange gains and losses, adjusted net profit increased 18.3% year on year.

Incident reviews

2024Q3's revenue growth rate is in line with expectations, and overseas markets have maintained rapid growth. On the revenue side, 2024Q1-Q3, the company achieved revenue of 12.281 billion yuan, a year-on-year increase of 22.8%. Among them, comparable to the year-on-year increase in same-store sales, the number of units was lower, and the average number of stores increased 19% year over year. With 2024Q3, the company achieved revenue of 4.523 billion yuan, up 19.3% year on year. Among them, domestic market revenue increased 8.7% year on year, and overseas market revenue increased 39.8% year on year. On the performance side, 2024Q1-Q3 achieved adjusted net profit of 1.928 billion yuan, a year-on-year increase of 13.7%. 2024Q3, the company achieved adjusted net profit of 0.686 billion yuan, a year-on-year increase of 6.9%. The growth rate of the company's performance was slower than revenue, mainly due to changes in exchange profit and loss, and the increase in expenses related to direct market expansion.

The overseas direct sales market continues to grow rapidly, and the pace of expanding stores at home and abroad is in line with expectations. By business, 1) MINISO China, 2024Q1-Q3 achieved revenue of 7.031 billion yuan, up 12.3% year on year, of which offline business revenue increased 12% year on year to 6.447 billion yuan, which is comparable to the number of units in the same store sales falling year on year (of which the number of units in which customer order volume fell year on year, customer unit price increased 0.2% year on year); online business revenue increased 19% year on year to 0.584 billion yuan. By the end of 2024Q3, Mingchuang Premium had a total of 4,250 stores in China, a net increase of 324 over the beginning of the year. Among them, there were 29 direct-run and 4221 third-party stores respectively, a net increase of 3 and 321 compared to the beginning of the year.

2) TOP TOY China, 2024Q1-Q3, achieved revenue of 0.7 billion yuan, a year-on-year increase of 42.5%, including the number of units in same-store sales. By the end of 2024Q3, TOP TOY had 234 stores, a net increase of 86 from the beginning of the year. TOP TOY has been profitable for four consecutive quarters. 3) Overseas markets, 2024Q1-Q3 achieved revenue of 4.543 billion yuan, a year-on-year increase of 41.5%. Looking at the split business model, overseas direct market revenue increased 64% year over year to 2.448 billion yuan, accounting for 54% of overseas market revenue; overseas agency market revenue increased 22% year over year to 2.095 billion yuan, accounting for 46% of overseas market revenue. Same-store sales performance in overseas direct sales and agency markets all increased by a high number of units over the same period last year. As of the end of 2024Q3, the total number of Mingchuang Premium stores in overseas markets was 2,936, a net increase of 449 compared to the beginning of the year. By business model, the number of direct-run and third-party stores was 422 and 2,514 respectively, a net increase of 184 and 265 compared to the beginning of the year. Looking at the subregions, there were 294, 598, 1572, 260, and 212 stores in North America, Latin America, Asia (excluding China), Europe, and other regions, respectively, a net increase of 122, 46, 239, 29, and 13 from the beginning of the year.

TOP TOY's gross margin increased by a medium to high single digit year-on-year, and the rapid expansion of overseas direct sales markets led to a short-term increase in sales expenses. In terms of gross margin, 2024Q1-Q3, the company's gross margin was 44.1%, up 3.7 pct year on year; for 2024Q3, the company's gross margin was 44.9%, up 3.1 pct year on year. The main reasons for the increase in gross margin: (1) the increase in the share of overseas direct sales markets with high gross margins; (2) the shift of the product portfolio to products with higher profitability; and (3) TOPTOY product portfolio optimization led to an increase in the gross margin of the business to medium to high units. In terms of cost ratio, 2024Q1-Q3, the company's sales and general administrative expenses rate was 25.8%, up 5.3 pcts year on year. Of these, sales and distribution expenses rate was 20.5%, up 4.9 pct year on year, and general and administrative expenses rate was 5.3%, up 0.4 pct year on year. Sales and distribution expenses increased year-on-year, mainly due to the company's investment in direct stores in mainland China and overseas markets, particularly strategic overseas markets such as the US. In terms of net profit margin, 2024Q1-Q3's adjusted net profit margin was 15.7%, down 1.3 pct year on year; after excluding exchange gains and losses, the adjusted net profit margin was 15.9%, down 0.6 pct year on year. In terms of inventory, 2024Q1-Q3, the company's inventory turnover was 85 days, an increase of 8 days over the previous year. The number of inventory turnover days in the Chinese domestic market was 71 days, the same as the previous year; the number of inventory turnover days in the overseas direct market was 173 days, an increase of 38 days over the previous year, mainly due to the increase in overseas direct stores and sufficient stocking for overseas markets. In terms of cash flow from operating activities, 2024Q1-Q3, net cash flow from operating activities was 2.031 billion yuan, which is basically in line with net profit.

Investment advice

In the first three quarters of 2024, from a store opening perspective, the company's pace of opening stores in domestic and overseas markets was in line with expectations, and it is expected to achieve the target of a net increase of 900-1100 stores throughout the year. In terms of same-store sales, Mingchuang China's same-store sales weakened in the third quarter. It is expected to be mainly affected by offline customer flow, with a steady rise in customer unit prices; same-store sales in overseas markets grew by a high number of units and remained resilient. The gross sales margin of 2024Q3 continued to increase in a single quarter. It is expected that the gross margins of Mingchuang Overseas and TOP TOY will both increase by medium to high units year over year. The sales expense ratio has risen in the short term due to the rapid expansion of stores in overseas direct sales markets. As overseas markets enter the peak sales season in Q4, the sales expense ratio is expected to decline. The company maintains its 2024 operating target, that is, revenue growth of 20%-30% year-on-year in 2024, and adjusted net profit of 2.8 billion yuan or higher. Maintaining the profit forecast, the company's 2024-2026 revenue is expected to be 17.349/21.166/25.418 billion yuan, and net profit to mother will be 2.828/3.452/4.135 billion yuan respectively, and EPS will be 2.25/2.75/3.29 yuan respectively. Based on the company's closing price on November 29, the 2024-2026 PE will be 15.9/13.0/10.9, respectively, maintaining the “buy-A” rating.

Risk warning

Domestic same-store sales recovery fell short of expectations; tariff risk; risk of large exchange rate fluctuations.