1. Executive Overview
This memo outlines an investment opportunity in Miniso Group Ltd, a leading retail company. The aim of this executive summary is to give an overview of the company and its edges by discussing key factors that make it attractive.
Currently, the market size for the total retail industry will reach 254.3 billion dollars in 2026, with a CAGR of +4.4% from 2022 to 2026, and the self-owned brand of the retail market will increase to 86.8 billion in 2026, with a CAGR of +12.6%.
After the pandemic, barriers to entry are higher than before, and differentiated products and brand effects lead to Miniso’s leading position. Compared to other competitors in the industry, Miniso possesses outstanding operating abilities in inventory turnover and debt paying. Thus, it is reasonable to believe that Miniso can keep its position and increase its market share in the retail market.
There are three major catalysts that will enable Miniso to beat the analysts’ expectations in the future: accelerated expansion and increase of average profits for each store, the potential of the North American market, and growth of TOP-TOY.
Based on the DCF Model, the stock price of MNSO is expected to reach $31.0/share, which implies a 35% upside for a 3-year target. However, with a plausible ratio comparable, the target price for this year is $27/share. In light of the investors’ overreactions toward the newest financial statement released for the 2023 fiscal year, I highly recommend investors wait until a low buying point and hold their position.
Associated risks may significantly impact the fluctuations in stock price. These may include macroeconomic risks, short-of-expectation risks, and overvaluation risks. It is essential to carefully evaluate these risks and consider mitigating strategies to prevent loss of investment.
2. Company Overview
MINISO Group Holding Ltd.(NYSE: MNSO) is a global leading brand variety retailer, offering lifestyle products with special IP designs through the MINISO Brand and TOP TOY Brand segments. While the MINISO Brand segment involves in design, buying, and sale of lifestyle products, the TOP TOY Brand segment includes in design, buying, and sale of pop toys.
1.1 Management
The company was founded in 2013 by Guo Fu Ye, the current largest stockholder with 64% shares and 77% voting rights. Due to Guofu’s experience with his first startup company “Aiyaya,” He gained an understanding of the retailing industry and partnership with suppliers, which built a solid foundation for following establishment of MINISO. During the last interview, he pointed out that the long-term target for the company is to reach 10,000 stores in the global market.
1.2 Geographic Customer Segments & Business Model
Thanks to different and complex cultures, business environments, and consumption habits in foreign countries, the company adopts flexible business models in various markets, including direct-sale mode, partnership mode, and proxy mode.
1.2.1 Direct-sale Mode-North America
For the North American market with a large population and high potential, MINISO tends to operate through a direct-sale model by opening experimental local retail stores to observe local customers’ preferences.
1.2.2 Partnership Mode-Indonesia
Indonesia is the representative of this type of mode. Due to the optimistic profitability of offline retail stores, the company has attracted a number of local partners, who are only required to provide the beginning capital, including maintenance margin, rent, storage fees, and salaries for workers, while MINISO will be responsible for the operation, management, design, pricing, training, and other operating activities.
1.2.3 Proxy Mode-other 80% stores
Via collaborating with foreign retailers owning abundant resources and experiences, the company is able to break the impediment of the local market to rapidly expand and elevate the scales. Compared to the partnership mode, this model guarantees the proxy has more autonomy toward operation under the supervision of the parent company. Nevertheless, failure to reach the target will lead to deprivation of the proxy rights.
2 Industry Overview
2.1 Market Size
The Miniso Group is positioned as a self-owned brand in the retail industry, which possesses high potential and superior growth. According to statistics provided by Euromonitor, the scale of the total global retail market has dropped by 1.5% to 207.5 billion dollars from last year, and CAGR from 2015-2022 is approximately 4.9%. Based on Euromonitor’s estimation, the market size for the total retail industry will reach 254.3 billion dollars in 2026, with a CAGR of +4.4% from 2022 to 2026, and the self-owned brand of the retail market will increase to 86.8 billion in 2026, with a CAGR of +12.6%.
2.2 Higher Barrier
Due to the pandemic, the retail industry just experienced a depressed market last year, especially for retail brands with lower scale and inefficient cash flow to undertake the negative impact caused by exogenous risk and systematic risk. While CR5 in the Chinese retail market slowed down its expansion during the pandemic, competitors, like “Nuomi,” even closed half of its offline stores, but MINISO maintained its rapid expansion in the global market. The pandemic indirectly filters potential competitors, elevates the barriers to entry, as well as guarantees MINISO’s leading position in the retail market.
2.3 Competitor Analysis
The following is a comparison of MNSO’s key competitors and their statistics:
2.3.1 Statistics Analysis
According to Frost & Sullivan’s statistics of global retail markets, Miniso, Daiso, MUJI, Flying Tiger, and Sanfu are 5 leading enterprises in self-owned brand retail companies in the industry, dominating 20.3% market share. Among CR5, MINISO, with the latest date of establishment and overseas expansion, owns the most rapid speed of expansion and the largest market share now.
MINISO has operating edges, superior to other retail competitors. The industry has an average payable payment period of 2-3 months, but MINISO with strong cash flow is able to provide its suppliers with a payment period of about 30 days. In addition, scale effect leads and digital operation with Huawei Cloud enable MINISO to effectively manage its inventory, shortening its inventory turnover period to 69 days, much lower than the competitor MUJI’s 165 days.
Compared to its competitors, MINISO’s comparable ratios, both PE and PB, are much higher than the industry average, which implies that the company’s price is relatively more expensive than its earnings and book value. Even though this company has the risk of being overvalued, the high comparable ratios suggest that investors hold an optimistic view of the company.
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