Summary of Key Points
Mingminghema's first interim report after going public shows impressive results: half-year revenue of 45 billion yuan (a 60% increase), adjusted net profit of 2.45 billion yuan (a 136.6% increase), and a net increase of 4,457 stores to a total of 26,400. However, several key issues lie behind these figures: Can the high gross margin be sustained after the price war subsides? What does the gap between 30,000 signed stores and 26,400 operating stores indicate? Where to go as the lower-tier markets approach saturation? And how to utilize the more than 10 billion yuan in cash on hand? The focus for the second half of the year should shift from "opening more stores" to "operating stores efficiently and finding new sources of growth."
1. Gross Margin Has Increased, but Can It Be Maintained?
The most notable aspect of the interim report is the rise in gross margin, which increased from 9.3% last year to 11.5% (an increase of 2.2 percentage points), nearly doubling in amount. There are two main reasons for this:
- Scale Effect: The larger the purchase volume, the lower the prices suppliers are willing to offer (half-year GMV was 63.89 billion yuan, with 2,700 partners and 66 warehouses). The growth in sales costs (56.1%) was slower than revenue growth (60%), meaning Mingminghema earned a larger profit margin.
- Anti-Involution Initiative: In June, Mingminghema joined hands with Wanchen (the industry's second-largest player) to announce the end of low-price competition. Although the impact was limited in the first half, the two dominant players now hold 75% of the market share. Without price competition, they have more leverage in negotiating with suppliers and can offer more reasonable discounts to franchisees, which has improved market expectations.
However, it's important to note that the adjusted net profit margin is only 5.4%. When share-based payments and listing expenses are included, the actual net profit margin for the parent company is 5%, which is not particularly high for a retail company with a turnover in the tens of billions. Whether the gross margin can be maintained at 11.5% in the second half will depend on future financial reports.
2. 30,000 Signed Stores vs. 26,400 Operating Stores: Fast Growth, but with Delays
In July, Mingminghema announced that it had signed contracts for over 30,000 stores, the first in the industry, but only 26,400 were actually in operation, a difference of 3,600. This is not due to fraud; it takes time for stores to open (decorations, inventory preparation, etc.). However, this indicates two things:
- Fast Store Opening Pace: 4,590 new stores were opened in the first half, with only 121 closing, resulting in a net increase of 4,457—almost 60% of the annual target for the whole year. The number of franchisees increased from just over 10,000 to 11,000, with each franchisee managing an average of 2.4 stores, indicating that the business model is maturing.
- Moving to Higher-Tier Markets: 60% of the stores are located in county towns and towns, with a coverage rate of 79%. While lower-tier markets offer lower rent and less competition, sales per store are limited due to limited consumer purchasing power, and there is also the issue of population decline. Therefore, the company is expanding into first- and second-tier cities (the number of stores increased from 4,178 to 5,287, accounting for one-quarter of the total increase). However, rent and labor costs in these areas are higher, and consumers are less sensitive to price, so the low-price advantage may not be as effective.
3. Opening Large Snack Stores: Not for Immediate Profit, but for Future Traffic
In April, Mingminghema opened a 13,000-square-meter "Snack Kingdom" with 35,000 products, attracting 265,000 visitors on May Day and receiving 480 million media impressions online. This store is not intended to be profitable—rent and labor costs in core business areas are too high to cover expenses solely from snack sales. Its value lies elsewhere:
- Brand Visibility: It demonstrates that Mingminghema is more than just a discount store.
- Partnering Platform: It attracts more brands to collaborate.
- Experimental New Format: The company's top management is personally involved, indicating a shift in focus from simply opening more stores to operating them efficiently and exploring new consumer scenarios.
4. Over 10 Billion Yuan in Cash, but No Investment in Digitalization?
The company raised 4.09 billion Hong Kong dollars through the IPO and has only spent 464 million (11.3%) of it, with no investment in digitalization. It holds 10.6 billion yuan in cash and equivalents, with no bank loans, and its debt ratio has decreased from 35.8% to 27.9%. The prospectus stated that the funds were to be used for the supply chain (25%), store upgrades (20%), and digitalization (20%). However, after half a year, only 7.9% of the funds have been allocated to the supply chain, and none to digitalization. It's understandable to retain funds for expansion after going public, but how to effectively use this large amount of cash in the future (e.g., investing in digitalization to improve efficiency or strategic investments) is a major concern for investors.
5. Second Half of the Year: Moving from "Expanding Quickly" to "Operating Efficiently"
The strategy in the first half was simple: open stores and compete with low prices. Now that the market is dominated by two players, price wars have stopped, and lower-tier markets are approaching saturation, Mingminghema needs to find new sources of growth:
- Product Expansion: Introduce hot food, cold chain, and short-shelf-life baked goods to increase per-store revenue.
- Store Efficiency: Optimize inventory and services to boost profits per store.
- Upstream Expansion: Produce products in-house (e.g., branded snacks) to earn higher margins.
- New Format Replication: Apply the success of the "Snack Kingdom" model to other stores.
There is still room in the market: 20% of counties have not been penetrated, and towns are far from saturation. The competition will not be about who opens the most stores, but who can sustain operations over the long term—stability, efficiency, and customer retention will be key.
In summary, Mingminghema has performed well in the first half, but the second half requires a shift from quantity to quality, focusing on refined operations and innovation. The company's cash and its large network of stores are valuable assets, and how it uses them will determine its success.