Recently, Miniso announced on the Hong Kong Stock Exchange that it intends to acquire a 29.4% stake in Yonghui Superstores (601933.SH) for 6.3 billion yuan. After the acquisition is completed, Yonghui Superstores' largest shareholder will be changed to Jun Cai International.

Judging from the market performance, on September 24, when the market opened, Miniso's share price on the Hong Kong stock market fell by nearly 40%, hitting a recent low during the session; while Yonghui Superstores' A-share price was capped at the daily limit, with the order volume reaching nearly 1.2 billion yuan. The diametrically opposed reactions in share prices may already indicate the attitude of market funds.

Miniso will become Yonghui Superstores' largest shareholder

On the evening of September 23, Miniso announced on the Hong Kong Stock Exchange that it intends to acquire a 29.4% stake in Yonghui Superstores (601933.SH) for 6.3 billion yuan.

Zhang Jingjing, Chief Financial Officer of Miniso, said in a conference call that after acquiring a 29.4% stake in Yonghui Superstores, Miniso is expected to become its largest shareholder. The transaction is expected to be completed in the first half of 2025, and important milestones during this period will be disclosed to the public.

According to public information, Yonghui Superstores was established in 2001 and listed on the A-share market in 2020. It is one of China's Top 500 Enterprises and a national double-leading enterprise in both "circulation" and "agricultural industrialization." The company primarily operates large-scale comprehensive supermarkets, supermarkets, and community supermarkets, with a total of approximately 850 stores located in over 25 provinces and municipalities nationwide.

Miniso is a popular lifestyle goods store among young people, which has been operated by Chinese young entrepreneur Mr. Ye Guofu since 2013.

Regarding this acquisition, Miniso stated that the cooperation between the two parties will allow for the development of higher-quality private-label products at lower costs, which is expected to enhance differentiated competitive capabilities. Yonghui Superstores has established an extensive store network and supply chain in the Chinese market, and through future cooperation and resource sharing, it can further improve economies of scale, optimize cost structures, and thereby increase the group's return on investment.

Miniso's share price fell nearly 40% during the session, while Yonghui Superstores' share price was capped at the daily limit

News of the acquisition quickly drew significant market attention.

In the US stock market, as of the close on September 23, Miniso fell by 16.65% to US$13.72 per share, hitting a new low since February this year. In the Hong Kong stock market, after the opening on September 24, Miniso fell to HK$20 per share at one point, with a decline of nearly 40%. In contrast, Yonghui Superstores' share price was capped at the daily limit at RMB 2.48 per share on September 24, with an order volume of nearly RMB 1.2 billion.

The market's response to the share prices may already indicate the attitude of market funds towards the acquisition. Foreign investment bank Jefferies analyzed that Miniso's investment in Yonghui Superstores may expose Miniso to less favorable or less mature investment areas, and its valuation over the next 12 months may face considerable pressure. At the same time, the firm downgraded Miniso's rating from "Buy" to "Hold".

Analysts stated that this transaction will consume most of Miniso's current net cash, and investors may prefer that funds be used for higher dividend payments or share buybacks. Investing in Miniso's own production capacity might be a better option, as the company is still in a period of rapid development, rapidly expanding its stores in both China and overseas markets.

Regarding the sale of a large percentage of equity, Yonghui Superstores merely stated in the announcement that its largest shareholder would be changed to Jun Cai International, and that Jun Cai International and its actual controller, Miniso, would work together with Yonghui Superstores to transition towards a quality retail model. However, Yonghui Superstores did not provide a more detailed explanation for the specific reasons behind the sale of equity.

Industry insiders analyzed that the current retail industry is under considerable pressure, and although Yonghui Superstores is already one of the leading companies in the industry, it still faces significant pressure. Recent reports have shown that Yonghui Superstores has recalled a large number of public relations personnel to its Fujian headquarters, with some personnel resigning during the process. This move has been speculated by the industry to be an attempt by the company to save costs or enhance the headquarters' control.

In the first half of 2024, Yonghui Superstores achieved revenue of RMB 37.779 billion, a year-on-year decrease of 10.11%; net profit attributable to shareholders was RMB 275 million, a year-on-year decrease of 26.34%.

Industry insiders also stated that Miniso is currently operating well, so the company hopes to expand its territory and cover a more comprehensive range of business formats through mergers and acquisitions. Yonghui Superstores is under considerable operational pressure and may have been searching for investors for some time. If this transaction is successfully completed, it may benefit the company and help alleviate some of its operational pressures.

Can the partnership create a "Chinese version of Costco"?

It is worth noting that Yonghui Superstores recently introduced Pang Donglai to revamp its stores. At the end of August, Yonghui Superstores' first self-revamped "Pang Donglai-style" store – Yonghui Superstores Zhongmao Plaza Store in Xi'an, Shaanxi Province – officially opened for trial operations.

Yonghui Superstores revealed that the store had previously achieved an average daily sales volume of approximately RMB 200,000 and an average daily customer flow of approximately 3,000 people. On the opening day, however, customer traffic surged, exceeding 14,000 people, and first-day sales reached RMB 1.5143 million.

Industry insiders stated that Yonghui Superstores has been planning to sell equity for some time. Its previous partnership with Pang Donglai to revamp stores was intended, on the one hand, to improve store operational efficiency, and on the other hand, it was likely an attempt to enhance its commercial value, which would be beneficial for Yonghui Superstores' capital operations.

Miniso stated that the Pang Donglai model has sparked a major transformation in China's supermarket industry. After being revamped by Pang Donglai, Yonghui Superstores has achieved breakthroughs in sales and customer traffic. Looking ahead, the partnership between Miniso and Yonghui Superstores is expected to create a "Chinese version of Costco Wholesale Club."

Whether Miniso and Yonghui Superstores can achieve improvements in their business and capital markets in the future will depend on how they integrate and collaborate. The effectiveness of their cooperation remains to be tested over time. Lan Fu Finance Network will continue to track this acquisition.