US And Europe Expansion And Partnerships Will Secure Lasting Success

Key Takeaways

• Strategic expansion in overseas markets and enhanced store formats are expected to significantly drive growth and profitability.
  
• Diversification of supply chain and focused partnerships are designed to optimize costs, boost margins, and enhance customer engagement.
  
• Aggressive expansion and supply chain diversification pressures could challenge short-term profitability, with same-store sales and low-margin store issues impacting earnings.

Catalysts

An investment holding company, engages in the retail and wholesale of lifestyle products and pop toy products in China, rest of Asia, the Americas, Europe, Indonesia, and internationally.

• Expansion in overseas markets, including a strategic focus on the U.S. and Europe, is expected to drive revenue growth. By tailoring store openings and enhancing the quality of locations, MINISO anticipates significant contributions to overall revenue from international operations.
  
• Strategic partnerships and IP collaborations, including co-branded product launches and themed stores, are projected to enhance customer engagement and drive sales, thereby improving net margins and overall earnings.
  
• The optimization and diversification of the supply chain, with increased local sourcing outside China, is expected to reduce costs and improve gross margins, providing a cushion against geopolitical risks and tariff changes.
  
• The integration of advanced data analytics and consumer loyalty programs aims to boost repurchase rates and customer spending, thereby increasing revenue per store and enhancing net profit margins.
  
• Strategic store format innovations, such as large flagship and IP-driven locations, are anticipated to improve the customer experience and same-store sales, optimizing revenue output and contributing to broader profitability goals.

MINISO Group Holding Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming MINISO Group Holding's revenue will grow by 19.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.9% today to 15.1% in 3 years time.
• Analysts expect earnings to reach CN¥4.5 billion (and earnings per share of CN¥12.1) by about August 2028, up from CN¥2.5 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as CN¥3.5 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.2x on those 2028 earnings, down from 18.0x today. This future PE is lower than the current PE for the US Multiline Retail industry at 18.0x.
• Analysts expect the number of shares outstanding to decline by 0.78% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 9.56%, as per the Simply Wall St company report.

MINISO Group Holding Future Earnings Per Share Growth

Risks

• MINISO faces considerable pressure with same-store sales declining slightly, which may affect overall revenue and profitability in both China and the U.S. markets.
  
• The company’s aggressive expansion, particularly in the U.S. and other overseas markets, involves high expenses related to new store openings, impacting net margins and profitability in the short term.
  
• Directly operated stores, vital to future growth, currently yield lower gross profit margins and need significant improvement to achieve targeted profitability, affecting earnings and operating profits.
  
• The integration and restructuring of retail partnerships could lead to short-term disruptions and loss of sales, influencing revenue.
  
• MINISO's supply chain diversification away from China in response to geopolitical risks could lead to initial inefficiencies and increased costs, impacting gross margins and overall earnings.

Valuation

• The analysts have a consensus price target of $22.736 for MINISO Group Holding based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $26.59, and the most bearish reporting a price target of just $16.49.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥29.9 billion, earnings will come to CN¥4.5 billion, and it would be trading on a PE ratio of 14.2x, assuming you use a discount rate of 9.6%.
• Given the current share price of $20.13, the analyst price target of $22.74 is 11.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.