Incident: 1) On January 7, 2025, the company announced that it will ① issue convertible bonds: convertible bonds with a total amount of 0.55 billion US dollars, a term of 7 years, and a conversion price of HK$64.395 on 2025/1/14. Interest will be paid every six months at an annual interest rate of 0.5% from January 14, 2025, with an exercise price premium of 26.14% compared to the closing price on January 6; ② Establish a bullish option price spread: the lower bound call option and upper limit warrants will be issued at the closing price of January 6 100%, corresponding to HK$64.395 and HK$102.1. The maximum number of shares to be issued accounts for about 5.31% of the tradable shares, which are issued by the company under a general mandate. 2) On December 31, 2024, the company announced that it will cooperate with Dark Mythos Goku IP.

Get low-cost financing with manageable dilution risks. The products released by the company this time mainly include two parts: convertible bonds and call option spreads. Among them: 1) Convertible bonds: $0.55 billion convertible bonds issued for 7 years, coupon interest of 0.5%, and a conversion price of HK$64.395, for ① overseas store expansion, supply chain construction, etc.; ② shareholder return plans (mainly share repurchases), accounting for 50% each. 2) Bullish option spread: Includes two parts: a lower-bound call option and an upper bound call warrant. The lower-limit call option is granted to the company by the counterparty with a cash delivery, and the company has the right to receive the difference between the lower strike price and the share price; the upper limit of the call option price spread is granted by the company to the counterparty, and the counterparty has the right to obtain newly allotted shares at the upper limit price.

This product design has significant advantages: 1) Obtaining low-cost financing. This time, the coupon interest rate was only 0.5%, and the issuance scale was 0.55 billion US dollars, which has the advantage of financing costs. 2) Reduce the risk of dilution. The product design reduced the risk of potential dilution of existing shares and raised the effective exercise price to HK$102.1. 3) Diversify financing channels to increase long-term capital coverage. 4) Optimizing capital structure and financial flexibility.

Purpose: Promote overseas expansion and supply chain construction, and focus on shareholder returns. The main uses of the company's convertible bonds include overseas store expansion, supply chain construction, etc., and shareholder return plans. 1) In terms of overseas stores, according to the company's 2024 three-quarter report, the number of overseas stores increased by 183 in Q3, increasing by +26, to a total of 2,936 overseas regional stores by the end of the 2024Q3 period. It is expected that this overseas store expansion will focus on three directions: promotion of direct-managed stores in the US, the attempt to switch from Southeast Asian store agents to direct management, and European store expansion. 2) At the same time, we are actively developing supply chain construction, etc., and the company's overseas supply capacity is expected to continue to be strengthened. At the end of December 2024, the company announced a joint cooperation with Black Myth and Wukong, further enriching the IP matrix. 3) Pay attention to shareholder returns. The company continues to pay attention to shareholder returns. This convertible bond is expected to use 50% of the capital for shareholder return plans centered on share repurchases, and the company will insist on no less than 50% of adjusted net profit per year as dividends in the future.

Investment advice: As a global leader in miscellaneous retail, the company is rapidly expanding globally using an asset-light model with advantages such as channels and supply chains, and has also incubated the trendy brand TOPTOY, which is expected to contribute to the second growth curve. Currently, various business formats, products, and supply chains are continuously being optimized, overseas business is growing rapidly, and profitability has improved markedly, and performance continues to exceed expectations. Referring to the company's third-quarter performance, without considering the contribution of supermarkets, we expect 2024-2026 operating income to be 17.17/20.57/24.06 billion yuan, net profit to mother of 2.53/3.2/4 billion yuan respectively, and estimated adjusted net profit of 2.8/3.43/4.17 billion yuan, corresponding to the current valuation of 20.1/16.4/13.5 times PE, maintaining a “buy” rating.

Risk warning: Market competition has seriously intensified; business format expansion and product iteration fall short of expectations; macro consumption falls short of expectations.