Miniso Group Holding Ltd

Key Reasons for Buy

• Operational Progress: During H1 FY24, the company made significant progress in its five-year strategic plan, reaching 7,000 global stores just under a year after hitting 6,000. It opened 502 net new stores, including 266 overseas and 47 TOP TOY stores, both achieving record opening paces. MINISO's same-store sales in mainland China recovered to 98.3% of the previous year's level. Overall, revenue increased by 25% to RMB 7.76 billion, driven by 7% same-store sales growth and 19% average store count expansion.
• Dividend Declaration: On August 30, 2024, the company's board of directors approved an interim cash dividend of US$0.2744 per American Depositary Share (ADS) and US$0.0686 per ordinary share. The record date for the dividend is September 13, 2024, with an ex-dividend date of September 12, 2024. Payments are expected on September 23 for ordinary shares and September 27 for ADS holders. The total cash dividend to be distributed is approximately US$85.5 million, representing about 50% of the company's adjusted net profit for the first half of 2024, funded from additional paid-in capital.
• Strategic Initiatives: MINISO Group Holdings has entered into agreements to acquire 29.4% of Yonghui Superstores Co., Ltd for about RMB 6.3 billion, positioning MINISO as Yonghui's largest single shareholder upon completion. Additionally, MINISO opened its first Sanrio-themed store in Australia on September 7th, located on George Street in Sydney, covering 300 square meters and featuring over 2,500 SKUs. The company also launched its largest global flagship store at Central Park Mall in Jakarta, Indonesia, designed as a "Dream Castle Amusement Park," spanning 3,000 square meters with eight product categories and three themed IP zones.
• Improved Profitability in H1 FY24: The gross margin rose to 43.7%, up 4.1 percentage points year-over-year, driven by higher revenue from directly operated markets, which accounted for 55.7% of overseas revenue. Additionally, increased gross margins in mainland China resulted from new product launches and a strategic brand upgrade for MINISO, while TOP TOY benefitted from a more profitable product mix. Other income increased to RMB 12.7 million (US$1.7 million) from RMB 3.6 million, primarily due to higher depositary bank income.
• Increased Selling & Distribution Expenses: Selling and distribution expenses rose 65.8% year-over-year to RMB 1,522.1 million (US$209.4 million), driven by investments in directly operated stores, particularly in the U.S. market. By June 30, 2024, the number of overseas stores reached 343, with revenue from these stores increasing by 111.4%.
• Revenue Split: In H1 FY24, revenue from mainland China rose 17.2% to RMB 5,026.7 million (US$691.7 million), driven by a 16.5% increase from MINISO's offline stores, attributed to a 16.0% growth in average store count, with same-store sales at 98.3% of the prior year's level. TOP TOY revenue surged 37.9%, supported by 13.6% same-store sales growth. Revenue from overseas markets increased 42.6% to RMB 2,732.0 million (US$375.9 million), due to a 21.8% rise in average store count and 16.3% same-store sales growth. Overseas markets accounted for 35.2% of total revenue, up from 30.9% in the previous year.
• Technical Analysis: MNSO's stock price found support at key levels and moved higher with strong volume, suggesting a potential near-term upside. The 14-day Relative Strength Index (RSI) has returned to a neutral position on the daily chart, reinforcing the positive outlook. Additionally, the stock price has crossed above its 50-period simple moving average on the daily chart, providing further support for a positive outlook.

Considering the expected valuation upside, strategic initiatives, rising gross margin, growth in average store count, escalating revenue from overseas markets, and operational progress during H1 FY24, a ‘Buy’ recommendation has been given on the stock at the closing price of USD 17.54, as on September 30, 2024.