Miniso Rating Downgrade

　　09896.HK recently announced the acquisition of 29.4% of Yonghui Supermarket's stock. Goldman Sachs published a research report stating that Miniso's H-Share fell 24% after the news was released, reflecting market concerns about its capital allocation and profit risks.

　　Image source: epochtimes

　　Goldman Sachs believes that if Yonghui Supermarket can successfully turn losses into profits, Miniso's profitability and shareowner return rate will increase, but the shareowner return rate may be diluted in the short term. The bank maintains Miniso's profit forecast, but lowers the valuation of Price-To-Earnings Ratio from 22 times to 15 times in 2024, and lowers the H-Share target price from 52 yuan to 36 yuan, giving it a “buy” rating. In addition, Goldman Sachs pointed out that Miniso has attractive risk returns in the upcoming US peak season and the launch of important intellectual property (IP) in October.

　　On the other hand, Bank of America Securities released a report stating that Miniso spent 6.27 billion RMB to become the largest shareholder of Yonghui Supermarket (601933.SH). Due to the recent increase in risks, the bank downgraded Miniso's rating from “buy” to “underperform the market”, and the target price was also lowered from HKD 50.2 to HKD 24.8. Although Bank of America Securities remains optimistic about Miniso's core business prospects, the transaction brings additional risks that may affect investors' views of the company.

　　There are several main reasons for Bank of America Securities' downgrade. Firstly, China's hypermarket industry is facing channel chaos, coupled with weak macroeconomic conditions, and Yonghui Supermarket's fundamental performance has been poor for many years. Although Miniso is optimistic about Yonghui's recent self-rescue measures, Bank of America believes that the performance of the six stores successfully transformed by Yonghui cannot represent the future of 850 stores. Bank of America also questions whether Miniso and Yonghui Supermarket can achieve a synergy effect of investment in the short term, and pays attention to the impact of this transaction on Miniso's capital allocation. Although Miniso expects the deal to improve returns, analysts believe there are other ways for the group to improve returns, such as further developing its fast-growing overseas business and returning capital to shareholders.