On September 23rd, Yonghui Supermarket announced that its shareholders Milk Company, JD World Trade, and Suqian Hanbang plan to transfer their company shares to Guangdong Juncai International Trading Co., Ltd. (referred to as "Juncai International") through an agreement transfer.

After the transaction is completed, Juncai International will become the largest shareholder of Yonghui Supermarket, holding a total of 29.4% of the company's shares. The total amount involved in this transaction is approximately 6.27 billion yuan.

Juncai International is a wholly-owned subsidiary of Miniso Group, which means Miniso spent nearly 6.3 billion yuan to become the largest shareholder of Yonghui Supermarket.

Why buy Yonghui Supermarket?

Miniso operates a trendy and fashionable chain store for young people, while Yonghui Supermarket is a chain supermarket operator specializing in fresh produce. The sudden intersection of these two vastly different brands has left many investors confused. Regarding this, Miniso provided an explanation in the announcement. Miniso believes that:

1. The store adjustment and reform being carried out by Yonghui Supermarket is a transformative attempt to return to the essence of retail business, and is the trend of the development of China's supermarket industry. It will provide consumers with a good consumption experience, create a happy employment environment for employees, and win a good brand image and reputation for Yonghui Supermarket, ultimately creating great commercial and social value. This cultural orientation is highly compatible with the corporate mission of Miniso, which is "born for happiness".
2. Miniso has unique capabilities and experience in developing independent brands, designs, and IP products. After the acquisition, Miniso can provide support to Yonghui Supermarket through business cooperation. Yonghui Supermarket can leverage Miniso's advantages to develop higher quality domestic brand products at lower costs, which is expected to enhance Yonghui Supermarket's differentiated competitiveness. Yonghui Supermarket operates a total of approximately 850 stores, spread across more than 25 provinces and municipalities in China, and has established a huge store network and supply chain in China. Both parties can share resources through business cooperation, further enhance economies of scale, optimize cost structure, create more value for consumers, and thereby improve the investment return of the group.
3. Due to the acquisition, the group will expand its investment and operational channels in the daily necessities retail business, thereby enabling the group to diversify its cyclical business risks, which is of great strategic significance to the group.

We do not expect to control a majority of the board of directors, therefore, we will not be the controlling shareholder or actual controller of Yonghui Supermarket, nor will we consolidate financial statements, "said Zhang Jingjing, Chief Financial Officer of Miniso, during a conference call.

Market panic

Although Miniso listed several reasons and benefits for the acquisition, the market did not buy it. As soon as the news came out, the stock price of Miniso immediately suffered a sharp decline.

Among them, Miniso's US stock closed at $13.72 on the 23rd, a sharp drop of 16.65%, hitting a new low in nearly half a year. On the Hong Kong stock market, it fell more than 37% after opening on September 24th, and the decline later narrowed. As of the morning close, the decline narrowed to about 26%. At the same time, Yonghui Supermarket's A-share market opened on September 24th with a direct limit up, trading at 2.48 yuan per share.

Why did Miniso's acquisition of Yonghui Supermarket cause such panic in the market?

On the one hand, Yonghui Supermarket is currently mired in losses. According to Yonghui Supermarket's financial report, the company's revenue has continued to decline from 2021 to 2023, with consecutive years of losses totaling 8 billion yuan over three years.

In the first half of 2024, Yonghui Supermarket's revenue and net profit both declined again, recording year-on-year declines of 10.11% and 26.34%, respectively. Despite poor performance, the stock price of Yonghui Supermarket has also been consistently declining. The current market value has shrunk by nearly 80% compared to its peak in 2020.

In contrast, the financial report of Miniso Group is much healthier and more stable. In the first half of 2024, the group achieved a revenue of 7.759 billion yuan, a year-on-year increase of 25%, and an adjusted net profit of 1.242 billion yuan, a year-on-year increase of 17.8%.

On the other hand, the withdrawal of both Milk Co., Ltd. and JD shareholders has inevitably raised concerns about the business prospects of Yonghui Supermarket.

In 2014, Milk Co., Ltd. invested in Yonghui Supermarket through private placement, with a transaction price of around 7 yuan per share. In 2015, under the new retail boom, JD.com invested 9 yuan per share in Yonghui Supermarket.

After nearly a decade, both parties sold all or part of their shares at a price of 2.35 yuan per share. Selling the shares at a discount of 20% or 30% raises doubts about whether the two companies have already become disillusioned with Yonghui Supermarket.

Yonghui Supermarket's Active Self Help

However, even facing consecutive years of losses, Yonghui Supermarket is still striving to save itself.

In order to reduce costs, Yonghui Supermarket closed 63 stores in the first half of the year and also invited the supermarket's "internet celebrity" Fat Dong to adjust its stores and make systematic adjustments to the stores.

In June of this year, Pangdonglai's first store in Yonghui Supermarket, Yonghui Supermarket Zhengzhou Xinwan Plaza, resumed normal operations. The effect of the adjustment is very significant, with the first day sales reaching 1.88 million yuan, which is 13.9 times the average daily sales before the adjustment. The passenger flow is nearly 13,000 people, which is 5.3 times the average daily passenger flow before the adjustment.

Yonghui Supermarket's attempt attracted Ye Guofu, the founder and CEO of Miniso. He stated during a phone conference on the 23rd that the Fat Donglai model is the only way out for Chinese supermarkets. And he said that he decided to invest in Yonghui after seeing the Yonghui Supermarket store that was adjusted by Pangdonglai. “The successful transformation of the three stores fully demonstrates that this model can be replicated nationwide. Following this path, Yonghui can undergo a complete transformation and create new benchmarks in the future.”

Ye Guofu also stated that choosing to invest in Yonghui Supermarket now is also due to the company's low valuation. "Yonghui's price is currently at its lowest point, and many people cannot understand it. If everyone can understand it, I definitely won't have a chance."

Ye Guofu said, "I hope everyone can be patient. I hope everyone believes in my vision. I am someone who not only looks at the retail industry in China, but also globally. I may make mistakes elsewhere, but in the retail industry, I will definitely not make mistakes."