CICC: Maintains outperform rating on MNSO (09896), target price of HK$39.16.

CICC released a research report stating that it maintains its adjusted net profit forecast of 3.1-3.5 billion yuan for MNSO (09896, MNSO.US) in 2026/27. Currently, both Hong Kong and US stocks correspond to a 9/9 times adjusted P/E ratio for 2026/27. It maintains an outperform industry rating and a target price of HK$39.16/ US$20.32, corresponding to a 13 times adjusted P/E for 2026, with 51%/50% upside potential. Key points from CICC: 1Q26 performance meets market expectations The company's revenue in 1Q26 increased by 28% to 5.7 billion yuan, with adjusted net profit excluding exchange gains and losses increasing by 8% to 630 million yuan, meeting market expectations. MNSO's domestic business continues to grow at a high quality rate MNSO's domestic business revenue increased by 30% to 3.2 billion yuan. The company promotes store upgrades with popular products, and innovative collaborations, including K-POP, bring about diverse breakthroughs, leading to a further increase in member contributions to over 70%. By channel, offline revenue increased by 27% to 2.9 billion yuan, with same-store sales increasing by a high single digit percentage. During the quarter, 25 new stores were opened, bringing the total number of "paradise" stores to 61 by the end of the quarter. Under the large store strategy, "paradise" and flagship stores account for 12% of total stores and contribute approximately 30% of sales. Online revenue increased by 55% to 340 million yuan. TOPTOY revenue increased by 51% to 510 million yuan. Focus on building an overseas operating system and improving quality in key markets MNSO's overseas business revenue increased by 22% to 1.9 billion yuan. The company optimized its overseas operating system and channel upgrades through unified standards, pilot replication, apprenticeship, etc., and focused on improving product depth and efficiency. Same-store sales in key markets such as North America increased by double digits, while Europe and Latin America saw positive growth. The quality of operations in the Indonesian market continued to improve after key adjustments. Slight decrease in gross margin, continued increase in sales expenses ratio The company's gross margin in 1Q26 decreased by 0.9ppt to 43.3%, mainly due to the decrease in the proportion of high-gross-margin overseas business and the increase in the proportion of optimized inventory and innovative business in domestic business. The sales expenses ratio increased by 1.6ppt excluding share-based payments, mainly due to increased expenses related to directly operated stores and advertising expenses. The management expenses ratio decreased by 0.4ppt. During the quarter, an investment in an AI company generated a profit of 870 million yuan, contributing 80 million yuan to Yonghui's profit. Adjusted net profit excluding non-operating project impacts increased by 8% to 630 million yuan. Development trends Since April, both MNSO's domestic and overseas key markets have performed well. The company focuses on member operations, channel upgrades, and IP content, guiding a 20-22% revenue increase in 1H26, with same-store sales in mainland China increasing by single digits and North America increasing by high single digits to low double digits. Risk warning: Retail environment is worse than expected, channel upgrades are not as expected, and new business development is not as expected.