Miniso (MNSO) stock price has been in a strong downward trend since going public in 2021. It tumbled to a low of $12.56 on Tuesday, its lowest swing since January 9, and 54% below its highest level this year. It has also fallen by over 58% from the record high of $32.54.
Miniso Group to acquire Yonghui Superstores
The Miniso stock price crashed hard this week after the company announced its intention to acquire a majority stake in Yonghui Superstores, a leading retailer in China.
Miniso will pay $889 million for the deal, which it hopes will boost its market share in China, the world’s second-biggest economy.
The market did not love the deal for two main reasons. First, Yonghui is a struggling retailer that has faced substantial challenges in the past few years. One of the challenges is that it is facing competition from the likes of JD.com and Alibaba.
Second, the deal came at a time when Chinese consumers were not doing well. Recent data by the government showed that retail sales in the country have been relatively soft in the past few months.
The weak retail sales explain why the Chinese government has been keen to boost its economic stimulus. On Tuesday, the central bank lowered the reserve ratio by banks, a move that will unlock over $125 billion in funds.
Investors also disliked the acquisition because the funds would have been used better to grow its core business. In a note, analysts at Bank of America downgraded the company, saying:
“While we continue to believe MNSO’s core business enjoys a solid outlook, we now thing the Yonghui transaction raises more questions than answers, increasing its risk profile and adversely impacting investors’ perceptions of the company.”
Miniso has been a growing company
Miniso is not a company that most people in the United States know. However, it is on of the fastest-growing retail groups in many emerging markets.
It is a retail outlet that deals with a reasonably-priced assortment of products like perfumes, wallets, jewelry, and kitchen items.
It was started by Ye Guofu, a Chinese billionaire, and has grown rapidly in the past few years, helped by its franchising approach.
Miniso’s annual revenue dipped from $1.36 billion in 2019 to over $1.27 billion in 2020 because of the pandemic. Unlike most retailers, Miniso does not do a lot of business online, which explains why the decline happened.
Its revenue has been growing since then, reaching a high of $1.58 billion in the last financial year. Miniso also moved from making a $219 million loss in 2020 into a profit of over $243 million.
The most recent financial results showed that Miniso’s business was doing well as total revenue rose by 24% to $553 million. This was a notable development since it crossed the RMB 4 billion level for the first time ever.
Miniso’s margins also continued rising, with the gross figure jumping to 43.9% while its operating profit jumped to over $103 million.
For the year’s first half, Miniso’s revenue rose by 25% to $1.067 billion while its gross margin rose to 43.7% from the previous 39.6%.
This growth happened as the company continued opening stores. It ended the quarter with 6,868 stores after having a net opening of 455. Most of these openings were in the international markets, where the management sees more opportunities.
Miniso, like other popular brands like McDonalds, uses a franchise model, where it only holds a handful of stores. In China, its directly-operated stores are 29 against 4,086 third-party stores. Globally, it directly operates 343 stores against 2,410 third-party ones. Miniso also owns the TOP TOY brand, which has 195 stores.
Miniso stock outlook
Miniso stock chart by TradingView
Miniso seemed like a classic value company before the latest acquisition. It was seeing robust revenue and margin growth. Most importantly, the company was returning funds to shareholders, especially through the HKD 2 billion share repurchase program. Share repurchases help to boost a company’s returns by increasing the earnings per share.
Miniso also has room to more than double its stores in the next decade. Unlike other retailers, its store opening costs are limited since they are done by third parties. This acquisition, however, has clouded Miniso’s outlook.
Turning to the weekly chart, the stock formed a slanted double-top chart pattern, a popular bearish sign. This week, it dropped below this pattern’s neckline at $15.23, its lowest point on February 5.
The stock has also moved below the 25-week Exponential Moving Average (EMA) while top oscillators like the MACD and the Relative Strength Index (RSI) have drifted downwards.
Therefore, the stock will likely drop further in the coming weeks, and then it will bounce back either this year or in 2025.
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