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MINISO Group Holding Limited (MNSO): $25.65
Key Insights
MINISO, a ten-year-old Chinese retailer offers products that are heavily influenced by Japanese design. It was listed on a U.S. exchange in 2020. Since its listing, the company managed to expand its intellectual property (IP) licenses from 17 to 80 including Barbie products. In its recent call transcript, the company mentioned that half of the store’s Stock Keeping Units (SKUs) related to the recent blockbuster “Barbie” series were sold out within the first 5 days of launch!
The company operates on a franchise model, and its retail partners open and operate their own stores under its brand name. They share part of in-store sales proceeds with the company and are responsible for the stores’ capital expenditure and operating expenses. This model carries both the potential for profitability and associated risks as individual franchisees might suffer if the company expands too rapidly. In its Q4 FY2023 report, the company stated that its per store sales increased by about 25%, excluding the impact of store closures last year. This figure looks promising and it is likely that the franchise model is working well for them thus far.
Almost a year back, in October 2022, we wrote about MINISO (MNSO) in our Buyback Wednesdays post titled MINISO Announces a $100 Million Buyback, when the company announced a repurchase program that represented around 6.25% of its market cap at announcement. The stock’s price was $6.03 at the time of announcement. Since then, MINISO’s stock price has more than quadrupled reaching as high as $25.65 on the day of this writing. This remarkable increase within a year has taken me by surprise, and I find myself regretting the missed opportunity. I was concerned by the company’s high short interest and a short report by Blue Orca as discussed later in this article. This has very much been a risk on year and we have seen companies like Carvana which were widely expected to go bankrupt last year, run up 926% this year.
The company has clearly outperformed the S&P 500 with a year-to-date return of 138.6% compared to the index’s total return of 16.25%.
Share Repurchase
This is the third consecutive year that MINISO has announced a buyback. This time the amount of buyback is twice as much as last year.
On September 15, 2023, MINISO announced that, following the expiration of the September 2022 share repurchase program, the company’s Board approved a new share repurchase program under which the company may repurchase up to $200 million over a period of 12 months. This represents around 2.25% of its market capitalization at announcement. The company expects to fund repurchases from surplus cash on its balance sheet.
MINISO had repurchased a total of 6.12 million shares, and 3.23 million shares under its 2021 and 2022 share repurchase programs respectively.
Over the course of two years, the number of shares outstanding has actually expanded by 36.5 million, which presents a contrasting narrative. It is possible that the shares repurchased by the company through these buyback initiatives were primarily intended to offset the dilution resulting from stock-based compensations.
Dividends
On July 27, 2023, MINISO’s Board adopted a dividend policy for the company. The aggregate amount of cash dividend to be paid is approximately $128.8 million, which is approximately 50% of the company’s adjusted net profit for fiscal year 2023.
Chairman Ye and his wife Yang Yunyun, will be big beneficiaries of the new dividends, since they collectively own 62% of MINISO’s shares. After three consecutive years of losses from 2019 to 2021, MINISO has been reporting profits for several quarters in a row, which could account for its recent announcement of a dividend policy. The company also paid a special dividend of $0.17 in 2022.
Valuation
MINISO is valued a bit on the expensive side with an EV/EBITDA of 17.94 for the trailing twelve months. The P/E ratio is 34.18 which is again high compared to the sector median.
Strong Financials
MINISO’s revenue and profits have increased, after some difficult years due to the pandemic. Revenue steadily increased from $1.37 billion in June 2019 to $1.58 billion in June 2023. Net income has seen a gradual increase since June 2021, rising from $17.8 million in the quarter to $74.3 million in June 2023.
Gross profit margin also improved gradually rising almost 14% from 25.85% in June 2021 to 39.84% in June 2023.
Current ratio and quick ratio of over 2 indicate that the current liabilities are well taken care of by the current assets.
Currently, the company has over $1 billion in total cash & short term investments and almost no debt. This lack of net debt is surprising given the company’s rapid global expansion. With capital expenditure of $24 million, the company’s free cash flow was $205.6 million for the trailing twelve months.
These cash reserves clearly support management’s decision to announce a buyback, a new dividend and fuel further geographical expansion.
Increasing Gross Merchandise Value (GMV)
GMV also called Gross Merchandise Volume refers to the total value of merchandise sold over a given period of time.
It is interesting to note that GMV has increased significantly in MINISO’s overseas markets, indicating rising sales volume. GMV per store in Latin America, Europe, Middle East and North Africa all recovered to about 90% of 2019 levels. GMV per store in Mexico is 10% higher than pre-COVID level. GMV per store in the U.S. was twice the pre-COVID level. Since the grand opening of its first global flagship store at Times Square on May 20, 2023, the company has consistently been setting new sales records. The 5,400 sq. ft. store on the first floor of 5 Times Square offers nearly 2,000 items.
In August 2023, GMV of MINISO’s offline stores in China increased by around 45% year over year, driven by around a 25% increase in the average GMV per MINISO store and around a 15% increase in the average store count. GMV of MINISO’s overseas business increased by more than 45% year over year.
Q4 FY2023 Results
The company’s fiscal year ended on June 30, 2023. The fourth quarter of FY2023 was strong for the company with increasing YOY revenue and EPS beating estimates though by a tiny margin.
MINISO China showed resilience despite the challenging consumption environment following COVID-19 related lockdowns. Offline sales of MINISO China achieved 40% year-over-year growth in this quarter. The overseas market also showed a 42% year-over-year increase from last year, exceeding expectations and setting a new record June quarter.
Fiscal year 2023 proved to be profitable for the company with expanding gross, net and operating margins along with around 14% year-over-year increase in sales.
Global Store Expansion
According to the company’s annual report, MINISO has opened 592 new stores in the past year, out of which 378 stores are opened locally and the rest are in the overseas market. This number was higher than prior years when the company managed to open over 500 stores from 2020 to 2021 and 450 stores from 2021 to 2022.
Within the local market, MINISO has successfully started penetrating into various lower-tier cities in China despite its prior experience of operating in mostly high-tier Chinese cities. This fiscal year the company opened only 8 stores in first tier cities whereas the number of stores opened in third tier cities was 251.
The Chinese markets are not as robust as they were in the pre-covid period. The best way to achieve top-line growth is to keep expanding its footprint globally and this is exactly what the company is doing at present. Regularly monitoring the same store sales metric is crucial to mitigate the risk of individual stores underperforming, as previously mentioned.
Risk
MINISO faces a substantial amount of risk, in spite of outperforming the market in the past year. The company’s financial reporting currency is RMB and changes in foreign exchange rates can affect its reported results.
The company’s high short interest of 61.62% is a big red flag.
On July 26, 2022, short seller Blue Orca issued a short report attacking the company.
Looking at the series of allegations, investors need to consider both the positives and negatives associated with the company’s recent corporate actions.
Bottom Line:
The company has adopted a lot of strategies that generated explosive growth in overseas markets even as the local Chinese market started reopening.
MINISO’s Top Toy business is growing rapidly but new blind box regulations by the Chinese government could be a key headwind.
Despite the associated risks, at the surface, it looks like MINISO appears to be executing well.
Welcome to edition 77 of Buyback Wednesdays, a weekly series that tracks the top stock buyback announcements during the prior week. The companies in the list below are the ones that announced the most significant buybacks as a percentage of their market caps. They are not the largest buybacks in absolute dollar terms. A word of caution. Some of these companies could be low-volume small-cap or micro-cap stocks with a market cap below $2 billion.
Buyback announcement activity declined considerably with only 9 companies announcing buybacks last week compared to 14 in the prior week.
1. IBEX Limited (IBEX): $14.51
On September 18, 2023, the Board of Directors of this business process outsourcing company authorized a new $30 million share repurchase program, equal to around 10.5% of its market cap at announcement.
| Market Cap: $265.59M | Avg. Daily Volume (30 days): 1,078,444 | Revenue (TTM): $523.12M |
| Net Income Margin (TTM): 6.04% | ROE (TTM): 23.98% | Net Debt: $21.47M |
| P/E: 9.23 | Forward P/E: 8.22 | EV/EBITDA (TTM): 4.83 |
2. Sylvamo Corporation (SLVM): $42.35
On September 19, 2023, the Board of Directors of this printing paper company authorised an additional $150 million share repurchase program, equal to around 8.5% of its market cap at announcement.
| Market Cap: $1.77B | Avg. Daily Volume (30 days): 342,861 | Revenue (TTM): $3.76B |
| Net Income Margin (TTM): 7.91% | ROE (TTM): 61.58% | Net Debt: $921.00M |
| P/E: 5.35 | Forward P/E: 7.39 | EV/EBITDA (TTM): 3.9 |
3. Magic Empire Global Limited (MEGL): $1.24
On September 13, 2023, the Board of Directors of this cleaning systems manufacturer approved a new $2 million share repurchase program, equal to around 7.7% of its market cap at announcement.
| Market Cap: $25.12M | Avg. Daily Volume (30 days): 143,102 | Revenue (TTM): $1.17M |
| Net Income Margin (TTM): -49.91% | ROE (TTM): -6.56% | Net Cash: $15.49M |
| P/E: N/A | Forward P/E: N/A | EV/EBITDA (TTM): N/A |
4. Valero Energy Corporation (VLO): $142.66
On September 15, 2023, the Board of Directors of this international manufacturer and marketer of transportation fuels and other petrochemical products authorized an additional $2.5 billion share repurchase program, equal to around 5% of its market cap at announcement.
| Market Cap: $50.38B | Avg. Daily Volume (30 days): 3,926,835 | Revenue (TTM): $151.76B |
| Net Income Margin (TTM): 7.21% | ROE (TTM): 44.99% | Net Debt: $6.25B |
| P/E: 5.02 | Forward P/E: 5.72 | EV/EBITDA (TTM): 3.34 |
5. Silvercorp Metals Inc. (SVM): $2.5
On September 15, 2023, the Board of Directors of this Canadian mining company authorized a normal course issuer bid to acquire up to 8,487,191 common shares of the Company, representing approximately 4.8% of the 176,816,488 common shares issued and outstanding as of September 5, 2023.
| Market Cap: $441.96M | Avg. Daily Volume (30 days): 1,088,504 | Revenue (TTM): $204.54M |
| Net Income Margin (TTM): 9.61% | ROE (TTM): 3.47% | Net Cash: $200.07M |
| P/E: 23.85 | Forward P/E: 13.05 | EV/EBITDA (TTM): 3.96 |
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