Miniso shares nosedived by a staggering 39.2% on Tuesday and their biggest drop since the company went public in July 2022. But what happened and why did investors hit the panic button? Well it all started with Miniso’s surprising decision to invest nearly 893 million which is about 7,450 crore rupees, in Yonghui Superstores, a Chinese supermarket chain that has been struggling financially.
This raised alarm bells among investors driving Miniso stock to its lowest price since December 2022. So what’s the deal with Yonghui? Miniso plans to buy a 29.4% stake in Yonghui from DFI Retail Group and JD.com at a price slightly above the current market value. But here’s the catch: Yonghui has been bleeding money for the past three years racking up a massive loss of 8 billion yuan by 2023. Not exactly a winning bet, right?
Well this has made experts uneasy. Nomura for example thinks this is a risky move with little to no benefit for Miniso. Yonghui’s financial health is shaky and they have been shutting down stores to cut costs. So why would Miniso want a piece of this action? And they are not alone. CMB International also questioned the timing of this deal. With the global economy in a state of flux, using almost all of Miniso’s cash reserves to buy a struggling supermarket chain seems well a bit reckless.
So how did the market take this news? As Miniso’s shares were in free fall, the broader Hong Kong market, the Hang Seng Index, was actually on the rise, up by 3.3%. And it was not just Hong Kong feeling the heat—Miniso’s U.S.-listed shares also took a hit dropping 16.6% the day before.
Now it’s clear that this deal has left investors jittery and wondering about the future of Miniso’s cash reserves and strategy. To stay in the loop on all things markets, economy and finance, stay with Newscut Magazine.
