Miniso operates on a franchise model. This allows the company to expand quickly and efficiently, while also reducing the risks and costs associated with owning and operating its own stores. Miniso's products are sourced from a network of suppliers in China and other countries, and are sold at prices that are significantly lower than those of competitors such as Muji and Uniqlo. This strategy has helped it attract a broad customer base, including millennials and other price-sensitive shoppers who are looking for quality goods at affordable prices.

To maintain its reputation as a trendy and innovative brand, Miniso also collaborates with designers and artists to create limited-edition products and collections. This helps the company stay ahead of the curve in terms of design and fashion, and also generates buzz and excitement among customers. In addition, the company invests heavily in marketing and branding, using social media and other channels to reach new audiences and build its brand.

Operational and financial track record:

Over the past few years (2020-2023), the revenues have grown from $9 billions to $17 billions (CAGR of 17.23%), primarily through acquisitions. Cash earnings (or free cash flow) grew at a slightly lower rate, from $1,1 billion to $1.2 billion (CAGR of 9.09%).

Source: MarketScreener - Financial Income Statement

Regarding share buybacks, they have been done at an average valuation of about 9 times EV/EBIT, both recently in 2022, and in previous years. Some would argue that buying back shares at such high valuations is risky. But so far, these buybacks have been beneficial to shareholders, as management has been very effective in growing revenues and earnings. Will this continue? That's the key question, of course. At the same time, the company shows a reasonable P/E ratio (25x) over the past few years, comparable with the one in the market.

Miniso's impressive returns are noteworthy, especially given the challenges of integrating newly acquired operations without cutting margins in a competitive retail market. Although, in the retail industry, mergers and acquisitions have always had a positive effect.

In 2019, Miniso acquired a 60% stake in Nacific, which specializes in natural skincare and beauty products. It allowed the group to expand its product offerings beyond its core categories of household goods, fashion accessories, and electronics, while also gaining access to Nacific's loyal customer base. In 2020, Miniso acquired a 50.1% stake in Lawson China, giving it a foothold in the highly competitive convenience store market, which allowed the company to expand its reach beyond its existing network of standalone stores and into a new retail format, while also gaining access to Lawson's extensive supply chain and logistics network.

There are two ways to create value in the wholesale business: through acquisitions and pricing power. Management has been successful on both fronts simultaneously. It has been very smart to have many locations all around the world (Asia, USA, Europe...), while being a global franchise which demands higher prices.

Valuation:

Source: MarketScreener chart

Related to the valuation, at $18 per share, the market capitalization is $41.7 billion and annual free cash flow is between $1.1 and $1.3 billion. So, all else being equal and barring any major new acquisitions. Miniso is currently trading at an average of 24 times its cash earnings (free cash flow).

The Covid pandemic has been complicated for the Chinese group which has seen many of its franchises closed and a slowdown in its growth. But "after the rain always comes sunshine" and by good weather I mean the explosion of EPS predictions. Indeed, in 2021 we were at -4.72 and analysts are forecasting an EPS of 6.85 by 2025 (or a CAGR of 65.91%). The company can also benefit from a net income increase of more than 100% between 2022 and 2023 ($638 million to $1.4 billion) while having a net margin of around 12%. Good news comes in twos, EBITDA and Operating Profit are also up by more than 100% over this period ($1.2 billion to $2.2 billion and $882 million to $1.8 billion) respectively.

Miniso is a good company, well managed and profitable. The diversification is well managed and offers good growth prospects, especially in North-America. Nevertheless, cautious investors may argue that the company’s value is kind of high for a cyclical business, especially in these more complicated macroeconomic conditions. At the current price and given the short-term outlook, the stock is expensive.

Source: MarketScreener - Ratings