2023-11-22 07:09:06 ET
Summary
- MINISO Group's Q1 FY 2024 financial results exceeded market expectations with strong revenue and earnings growth.
- The company's geographical diversification, particularly in the US, has contributed to its impressive performance.
- MINISO Group's shareholder capital return approach is worth monitoring, taking into account its expected total shareholder return yield of 4.2%.
- I see lots of reasons to stick with my existing Buy rating for MNSO stock, after reviewing the company's recent quarterly results.
Elevator Pitch
I continue to rate MINISO Group Holding Limited ( MNSO ) [9896:HK] stock as a Buy.
MNSO's shares have almost doubled, or went up by +97.4% (source: Seeking Alpha price data), since I upgraded my rating for MINISO Group from a Hold to a Buy in my January 17, 2023 write-up . In the current article, I perform a review of MNSO's financial results for the first quarter of fiscal year 2024 (YE June 30).
MINISO Group's above-expectations earnings for Q1 FY 2024 validate my positive view of the stock. I am encouraged by MNSO's gross profitability improvement and international markets expansion for the recent quarter. I also find MINISO Group's expected FY 2024 shareholder return yield of 4.2% appealing. I still view MNSO's shares as a Buy in consideration of these above-mentioned factors.
The Market Had Reasonably Bullish Expectations Of MNSO's First Quarter Performance
Prior to the company's actual Q1 FY 2024 earnings announcement on Monday, November 20, 2023, the sell side anticipated that MINISO Group's most recent quarterly performance will be good.
With regards to revenue, the analysts forecasted that MNSO's top line will rise by +35% YoY and +15% QoQ to RMB3,743 million in the first quarter of the new fiscal year as per S&P Capital IQ consensus data. In terms of the bottom line, the market saw MINISO Group's normalized net income attributable to shareholders expand by +5% QoQ and +40% YoY to RMB594 million (source: S&P Capital IQ ) for Q1 FY 2024.
MNSO did live up to sell-side analysts' expectations of robust year-on-year and sequential growth in both its top line and bottom line. In fact, MINISO Group's most recent quarterly headline numbers were way better than what the market had initially hoped for, as highlighted in the subsequent section.
But MINISO Group Still Delivered A Strong +7% Earnings Beat
MNSO's actual Q1 FY 2024 adjusted net profit attributable to shareholders was RMB636 million as disclosed in the company's recent quarterly earnings release . This turned out to be +7% higher than the market's consensus bottom line estimate of RMB594 million. The company's top line of RMB3,791 million for the first quarter of fiscal 2024 also came in +1% above the consensus projection.
Revenue for MINISO Group increased by +17% QoQ and +37% YoY, and this was attributable to both the expansion of the company's store network and the increase in sales contribution on a per-store basis.
The total number of the company's stores grew by +16% YoY and +6% QoQ to 6,115 at the end of the first quarter of this fiscal year. On the other hand, MNSO's revenue per store for domestic (China) MINISO stores, domestic TOP TOY (new sub brand) stores, and international stores, expanded by +24%, +25%, and +25%, respectively in Q1 FY 2024 on YoY terms.
Separately, MNSO recorded a +54% YoY and +14% increase in its normalized net income for the most recent quarter, and this was driven by fixed cost leverage and gross profit margin improvement.
MINISO Group benefited from positive operating leverage, as its General & Administrative or G&A costs only rose by +2% YoY in Q1 FY 2024 as compared to a +37% YoY surge in its revenue during the same time period.
The company also saw its gross profit margin widen by +6.1 percentage points YoY from 35.7% for Q1 FY 2023 to 41.8% in Q1 FY 2024. MNSO's gross margin expanded in the recent quarter due to the increase in sales contribution from higher-margin products and brands (e.g. new sub brand TOP TOY), and a reduction in product sourcing expenses.
In summary, MINISO Group delivered an outstanding set of results for the first quarter of fiscal 2024. Even though the market had high expectations of MNSO's Q1 FY 2024 results, the company still managed to deliver a positive surprise with its better-than-expected revenue and earnings in the recent quarter.
Geographical Diversification Pays Off
In the middle of last month, MNSO issued a media release revealing that it has opened "over 20 new stores in the United States in recent months." In this November 15, 2023 press release, MINISO Group also guided for another 15 new stores to be opened in the US before this year comes to a close.
It is worth noting that MINISO Group's North American market saw its sales grow by almost +160% YoY in Q1 FY 2024 as indicated in MNSO's first quarter results release. In the most recent quarter, MNSO's revenue growth for non-Chia markets was +41% YoY, which was superior to the company's +35% YoY top line expansion for the Chinese market. Furthermore, MINISO Group's revenue contribution from foreign markets outside of China was as high as 34% for Q1 FY 2024.
MINISO Group's geographical diversification didn't go unnoticed. In 2023 year-to-date, KraneShares CSI China Internet ETF ( KWEB ), a proxy for China internet names and Chinese companies in general, witnessed a -9.8% decline. In the same time frame, MNSO's share price has surged by +157.3% . In my opinion, the market is rewarding MINISO Group for both its attractively-priced products' appeal in the eyes of bargain-seeking, value-conscious Chinese consumers, and its success in diversifying away from China to reduce geographical concentration risks.
Attractive Total Shareholder Return Yield
MINISO Group's shareholder capital return approach is something to watch closely, apart from its recent financial performance and geographical expansion efforts.
Earlier, Asian stockbroker UOB Kay Hian published a research report (not publicly available) titled "Key Takeaways From Asian Gems Conference" on October 16, 2023 which detailed MNSO's participation in an investor conference hosted by the brokerage firm. In this report, it was highlighted that MINISO Group's "management states that the company will maintain its 50% dividend payout ratio in the coming years." This gives me greater confidence in the market's consensus FY 2024 dividend yield estimate of 1.9% for MNSO as per S&P Capital IQ consensus data, which also assumes a 50% payout ratio.
Previously in September this year, MINISO Group disclosed a new $200 million share repurchase plan which will be in effect between September 2022 and September 2023. This translates into a 2.3% buyback yield based on MNSO's market capitalization of around $8.6 billion (source: S&P Capital IQ ) at the time of writing, assuming that this share buyback program is completed in a year.
In a nutshell, I estimate that MNSO's total shareholder return yield (sum of repurchases and dividends divided by market capitalization) for this fiscal year might be as good as 4.2% (2.3% + 1.9%). The attractive shareholder return yield is the icing on the cake for a company, which boasts an impressive consensus FY 2024-2026 normalized EPS CAGR of +22% (source: S&P Capital IQ ).
Concluding Thoughts
A Buy rating for MINISO Group is justified by the company's recent quarterly financial performance that exceeded expectations. The company's shareholder capital return strategy is also sound, which translates into an enticing total shareholder return yield of 4.2%.
For further details see:
Miniso: Earnings Beat Supports My Buy Rating