Is Miniso buying Yonghui at a bargain price, actually because of Pang Donglai?

In the ups and downs of the retail industry, every change is a challenge to the status quo and a gamble on the future. When MINISO acquired Yonghui Superstores for RMB 6.3 billion, this move was not only a bargain hunting of Yonghui, but also a bold bet on the future development of China's retail industry.

Ordinary people see difficulties, while strong people see opportunities. When the retail industry was in a long-term predicament, Ye Guofu stood up.

On the evening of September 23, the news that MINISO will become the largest shareholder of Yonghui Superstores swept social media. MINISO announced that it would acquire 29.4% of Yonghui Superstores' equity for RMB 6.3 billion, including 21.1% held by Dairy Farm and 8.3% held by JD.com. The announcement showed that after the transaction is completed, MINISO is expected to become the largest shareholder of Yonghui Superstores, further expanding its offline retail footprint.

Hou Yi, founder of Hema, posted on WeChat Moments: "After reading the speech at the shareholders' meeting of MINISO, I give a thumbs up to Ye Guofu's courage and determination. He proposed that China's retail industry will definitely have a trillion-level supermarket in the future, and I firmly believe this; China's traditional retail industry is in a state of deep depression and needs external forces to break through. It needs entrepreneurs with a global perspective and vision to promote change."

However, the reaction of capital was not as positive as people expected. That night, Miniso’s US stocks fell more than 7% in pre-market trading.

How did Ye Guofu respond to this situation? A reply in his circle of friends can summarize his attitude: It’s right that no one can understand it. If everyone can understand it, I will have no chance.

1. Buying Yonghui at the bottom, but actually optimistic about the Pangdonglai model

On the surface, the opportunity that Ye Guofu mentioned is that the time to buy Yonghui shares at a bargain price has arrived, but from a more macro perspective, it is a bet on China's offline retail industry.

As we all know, Yonghui's name frequently appeared in the public eye this year because it sought help from Pang Donglai. Although the H1 financial report data showed that there was no significant improvement in performance, the downward trend in revenue and profit remained unchanged.

However, chronic diseases are difficult to cure overnight, and reforms are never achieved overnight. Under the general downward trend, the growth that represents future trends is more worthy of attention. In terms of online business, Yonghui has shown strong growth momentum. In the first half of the year, online revenue reached 7.84 billion yuan, accounting for 20.8% of total revenue. By improving product competitiveness and optimizing warehouse and distribution efficiency, it has achieved significant reduction in losses in online business. In terms of APP, the number of registered members of "Yonghui Life" has also exceeded 200 million, reaching 200.4 million households.

Moreover, the stores that have undergone adjustments by Pang Donglai have indeed achieved earth-shaking changes. The average daily sales of the first pilot store in Zhengzhou Xinwan Plaza jumped to 1.87 million yuan, a 13.9-fold increase compared to before the adjustment; the average daily sales of Hanhai Haishang store has reached 1.08 million yuan, 8.2 times the average daily performance before the adjustment, and the customer flow has increased nearly 10 times.

We have already seen a huge ship that is about to go out to sea tomorrow, so there is no reason not to get on board. Zhang Jingjing, CFO of MINISO, said in a conference call that Yonghui Supermarket's business has reached a turning point and will see significant improvements in the next one or two years, and the time for investment has arrived.

Ye Guofu believes that China's offline supermarkets are facing a structural opportunity that only comes once every 20 years, and Yonghui has great potential. Today, a group of domestic supermarkets, represented mainly by Yonghui, have launched a revolution that will reshape the landscape of China's offline supermarkets. As a brand that was personally trained by Pang Donglai, Yonghui has great potential to stand out in this revolution.

2. MINISO’s big game

Without talking about betting on trends, just for now, investing in Yonghui can also bring some benefits to Miniso.

Improve return on capital

Zhang Jingjing said bluntly in the conference call: "Among MINISO's more than 15 billion yuan in assets, cash accounts for a high proportion, which has been dragging down the company's return on capital. The investment in Yonghui Superstores will be of great help in improving the return on capital."

Although Yonghui is at a disadvantage in terms of financial reports, its business scale is still huge and it still has stable cash flow, which is actually underestimated by the market. For MINISO, stable cash flow is one of the engines of the group's profit growth. Ye Guofu also said, "As long as we pay more attention to product strength, employee care, and consumer experience, we will create huge value for society and shareholders."

Rapid expansion and upgrade to improve coverage

Since its listing in 2020, MINISO has been reforming all the way and has upgraded its brand, channels and IP strategy. However, among the top 1,000 shopping malls, MINISO's effective coverage is not high enough. If it wants to grow faster, it needs stronger channels.

It is not difficult to foresee that after the acquisition, MINISO can use Yonghui's brand power to get better locations and rental conditions. After all, the scene of the explosion of Pang Donglai is still vivid in our minds, and no shopping mall would not want such a brand to settle in. The renovated Yonghui is the next Pang Donglai they are eyeing.

Incorporate fresh food to complete the retail layout

Whether it is entering the trendy toy market and launching TOP TOY, or setting up beauty and cosmetics stores, it can be seen that MINISO is constantly looking for new growth curves, and Yonghui, as a leading offline fresh food retail supermarket, still has a certain say in the necessities market. This is undoubtedly a new way out for MINISO, opening up the fresh food market and completing its retail layout.

In this regard, Ye Guofu believes that the inclusion of Yonghui Supermarket will help Miniso Group to diversify its cyclical business risks and will be more conducive to Miniso becoming a large-scale chain group company with global influence.

However, he also emphasized that this acquisition will not affect the strategy of MINISO Group in the next five years. MINISO will still adhere to product innovation and IP strategy, cost-effectiveness and globalization, and adhere to the development goal of the group's revenue compound growth of no less than 20% in the next five years, and the growth rate of earnings per share will be higher than the growth rate of revenue.