Yonghui changes hands driving Hong Kong retail stocks to soar, does this signal a reversal of the market trading dilemma?

The news of MNSO (09896) splashing 6.3 billion RMB to take over Yonghui Superstores not only caused Yonghui's stock price to hit the daily limit up, but also spread the market's optimism to the Hong Kong stock market's supermarket retail concept sector. On September 24, representatives of the Hong Kong stock market's supermarket retail stocks, SUNART RETAIL (06808) and AEON STORES (00984), opened with a gap up and both stocks showed strong performance throughout the day. By the close of trading, SUNART RETAIL closed at 1.67 Hong Kong dollars, up 16.78%, while AEON STORES closed at 0.405 Hong Kong dollars, up 15.71%. It is worth mentioning that one of the protagonists of this acquisition, MNSO, saw its stock price plummet after the announcement. However, the company's founder, chairman and CEO Ye Guofu was unfazed by this and claimed on social media: "If everyone doesn't understand, then that's perfect. If everyone understood, I wouldn't have the opportunity." So, what hidden business values in the supermarket retail sector did the "keen-eyed" Ye Guofu see that led to this acquisition? Looking at the Hong Kong stock market related stocks, is it now the time to reassess the value of companies like SUNART RETAIL and AEON STORES? Yonghui changing hands, driving Gaorun, AEON STORES rebound? Since "joining forces" with Fat Donglai, Yonghui Superstores has been repeatedly discussed in public opinion. At the end of May this year, Fat Donglai officially started the closure and renovation of the Yonghui Superstores Zhengzhou Xinwan Square store. Nineteen days later, the newly renovated Yonghui Xinwan Square store reopened for business, with sales of 1.88 million RMB on the first day, 13.9 times the average daily sales before the renovation; and a footfall of 12,926 people that day, 5.3 times the average daily footfall before the renovation. Fast forward to September, the hype surrounding the renovation by Fat Donglai has not completely subsided. On September 23, Yonghui Superstores released another heavyweight news: the company's shareholders, Milk Company, JD World Trade, and Suqian Houbang (JD consistent actors) plan to transfer their 29.4% stake in Yonghui Superstores to Juncain International, with MNSO (Guangzhou) Limited Liability. company, as the controlling shareholder. After the transfer, MNSO will become Yonghui's largest shareholder. According to related media reports, Ye Guofu stated in a conference call that one of the core reasons for MNSO's acquisition of Yonghui Superstores is that NCF believes that the current offline supermarket in China is facing a once-in-twenty-year structural opportunity, and that Yonghui has great potential. Ye Guofu explained that his experience buying roasted sweet potatoes from Fat Donglai left a deep impression on him. Several visits to renovated Yonghui stores also increased his confidence in offline retail. Ye Guofu believes that it is not that offline retail is not working, but that traditional retail and supermarket business models have problems. Now, a group of domestic supermarkets led by Yonghui has sparked a revolution, reshaping the landscape of offline supermarkets in China. And as a result of Fat Donglai's hands-on training, Yonghui has tremendous potential to stand out in this revolution. The actual effects of MNSO's acquisition of Yonghui Superstores may take a long time to show, but the news has ignited a wave of enthusiasm in the Hong Kong and A-share supermarket retail concept stocks. Take SUNART RETAIL, mainly operating large stores under the brands of RT-Mart and Auchan, for example. After the surge on September 24, the company's market value increased by a whopping 22.9 billion Hong Kong dollars in a single day. However, quite dramatically, Ye Guofu publicly stated at an industry conference five years ago that RT-Mart was already of no value. Although he did not see the potential in the past, the recent trend in SUNART RETAIL's stock price suggests that investors may be holding optimistic expectations for this actively transforming retail giant. In the past four trading days, SUNART RETAIL's stock price has risen by 33.6%. By the close of trading on September 24, the stock price had rebounded by 83.5% from its low point in the year. SUNART RETAIL is not alone. Another retail chain company listed in the Hong Kong stock market, AEON STORES, also experienced a rare surge on September 24. Public information shows that AEON STORES is a Japanese comprehensive retail and service company that began operations in Hong Kong in 1985 and expanded to Guangzhou in 1996. According to the company's official website, AEON STORES operates over 400 different format stores in China, covering department stores, supermarkets, and comprehensive financial services. It is noteworthy that both SUNART RETAIL and AEON STORES have underperformed recently, and both are currently focused on "transformation". In the fiscal year 2024, SUNART RETAIL reported revenue of 72.57 billion RMB, down 13.3% year-on-year; and a net loss of -1.605 billion RMB, a significant increase in losses. As for AEON STORES, the company's revenue in the first half of this year was 4.052 billion Hong Kong dollars, a decrease of 10.4% year-on-year; and a net loss of -171 million RMB, also a significant increase in losses compared to the same period last year. In their previous annual reports, SUNART RETAIL admitted that the company had taken the wrong path in the 24th fiscal year, but will welcome the 25th fiscal year with a new management team and strategy; similarly, AEON STORES stated in its half-year report that it will actively adjust its operating strategy, strengthen digital transformation, in order to seize new business opportunities. With MNSO's high-profile acquisition of Yonghui Superstores, will the active funds in the Hong Kong stock market trade SUNART RETAIL, AEON STORES, and other retail stocks to turn around their current predicaments?When do we reevaluate the value?By extending the K-line chart of SUNART RETAIL, it can be seen that the company's bear market has lasted for a full four years, with a decline of about 90% during this period. During these years of plummeting stock prices, SUNART RETAIL's performance has indeed been lackluster. From fiscal year 2022 to 2024, the company's revenue shrank from 88.134 billion yuan to 72.567 billion yuan, with a cumulative loss of over 2.4 billion yuan over three years. Although looking back at these challenging years, the future may still hold promise. At the start of the 25th fiscal year, SUNART RETAIL adjusted its management team, appointing former Auchan executive Shen Hui as the company's CEO, while refocusing on revenue growth and planning to reshape its price advantage. In terms of specific operational initiatives, SUNART RETAIL is currently focusing on creating a "second growth curve", including re-examining and refining the hypermarkets model (RT-Mart), as well as developing M membership stores. As of March 31, 2024, SUNART RETAIL had 472 large-scale stores, 32 RT-Mart stores, and 3 membership stores. In the near future, the opening speed of the company's M membership stores seems to be further accelerating, with the opening of Jiaxing M membership store and Wuxi M membership store. In response, Macquarie recently released a research report stating that, given that SUNART RETAIL's same-store sales turned positive from April to August, combined with the management's goal of cost control, the bank expects SUNART RETAIL to return to profitability in the first half of the 25th fiscal year; based on the optimistic expectations for the company's development, Macquarie has raised SUNART RETAIL's target price by 22% to 1.83 Hong Kong dollars. Coincidentally, AEON STORES, a veteran retail chain enterprise, is also adjusting its strategic layout in the Chinese market. Public data shows that AEON STORES has been experiencing losses in its mainland China business for 8 consecutive years. Despite this, the group still plans to continue opening stores in an enterprising manner. Recently, the first shopping center AEON STORES Dream Le City (AEON Mall) in Changsha, Hunan province, opened. It is reported that in addition to the AEON STORES supermarket, it also introduced 250 specialty stores and entertainment facilities covering an area of approximately 15,000 square meters for consumer experience. On the opening day of the above-mentioned shopping mall, the president of AEON STORES Dream Le City, Keiji Ono, also publicly announced that the company "will accelerate the opening of stores in the high-growth potential inland regions of China." By 2030, the company aims to increase the number of shopping centers in Hunan province to 5 and in Hubei province to 7. While expanding their business into the Chu region, AEON STORES also has more aggressive expansion goals in its traditional advantages regions of Hong Kong and the Greater Bay Area. According to the company's semi-annual report, AEON STORES plans to complete the upgrade and renovation of AEON STYLE in Tsuen Wan in the Hong Kong region within the year, and also plans to open a new AEON STYLE, a "monomono", a KOMEDA'S Coffee, a JELYCOBy KOMEDA, and several Daiso Japan stores; in the Greater Bay Area, AEON STORES will also open two new AEON super supermarkets. When faced with their respective operational challenges, it is clear that old-school retail giants are actively seeking new solutions. Currently, as MNSO invests heavily in Yonghui Superstores, investors may want to reassess the value and future of key retail companies. However, switching back to the perspective of stock prices, after the release of optimistic sentiments, it may ultimately depend on the performance of the relevant concept stocks on how high and how long they can rebound.