(Sept 24): Fast-growing Chinese retailer Miniso Group Holding Ltd plans to splash out 6.27 billion yuan (RM3.72 billion) on a majority stake in one of the country’s struggling mega-supermarkets, a move that spooked investors and sent its stock tumbling.

Miniso said Monday night that it will acquire a 29.4% stake in Yonghui Superstores Co from the chain’s existing main shareholders, including DFI Retail Group Holdings Ltd’s Dairy Farm Co and two units of Chinese e-commerce giant JD.com Inc. Its offering price of 2.35 yuan per share represents a 4.4% premium to Yonghui’s Monday closing price.

The move shocked investors and analysts. Miniso’s American depositary receipts tumbled as much as 20% in New York trading on Monday, the biggest intraday drop since March 2022. The rout continued on Tuesday morning, with Hong Kong-traded shares tumbling by a record of 39%. Yonghui’s Shanghai-listed shares rose to the daily trading limit of 10%.

Miniso’s investment “might not be the best use of cash,” Jefferies analysts Anne Ling and Boya Zhen wrote in a note. “The deal will consume most of Miniso’s current net cash which we believe investors might prefer to have in the form of a higher dividend payout or share buyback.” 

Guangzhou-based Miniso peddles affordable, well-designed daily necessities — from stationery and kitchenware to dolls and snacks — at more than 5,500 stores across 100 countries and regions. The brand caused a stir this month on Chinese social media after photos showed American rapper Ye, formerly known as Kanye West, taking his children to a Miniso store while in the country for a performance in southern Hainan.

Yonghui, China’s second-largest hypermarket chain, has embarked on an ambitious overhaul of its supermarket business modelled on tiny, consumer-friendly rival Pangdonglai, a grocer with just a dozen or so stores that’s become a role model for other ailing Chinese retailers. Yonghui has remodelled several outlets in a near mirror image of Pangdonglai, stocked with higher quality products and better customer services including free cell phone chargers.

More stores are set to be revamped. Sales at some revamped Yonghui stores have shot up tenfold, and Yonghui’s management expects their revenue to eventually normalise to more than double previous levels. Yonghui operates about 850 stores across more than 25 provinces in mainland China and posted a net loss of 1.36 billion yuan during 2023 as revenue declined from a year earlier. 

The supermarket giant’s “ongoing adjustment and reform in its stores is a revolutionary attempt to return to the essence of retail business,” Miniso said in a statement, adding that it would support Yonghui in developing self-branded products at lower costs.

Miniso’s CEO Ye Guofu also praised Pangdonglai for attracting consumers back to physical stores in a July post to social media platform WeChat, saying customers were scooping up its products with so much enthusiasm it was as if they were free.

Miniso expects to become the largest shareholder of Yonghui after completion of the deal, which is subject to regulatory and shareholder approvals.

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