Huitongda Network (9878.HK)

Huitongda Network (9878.HK): Further Upgrading in Supply Chain Capacity Opens A New Chapter of Growth

Huitongda Network Co., Ltd. (9878. HK) released its 2024 interim report on August 28th. Data shows that the Group achieved a revenue of 32.86 billion yuan in the first half of the year, a net profit attributable to the parent company of 130 million yuan, and a stable positive inflow of operating cash flow of nearly 249 million yuan. Amidst the slow global economic recovery and domestic macroeconomic fluctuations, the Group has adjusted its development strategy to enhance the quality and depth of the business, manifesting its robust and high-value development strategy.

It is not difficult to find far-reaching growth logic and strategic value behind the in-depth analysis of financial report data: the Group is gradually unlocking new growth potential and building a more solid foundation for sustainable development in the future by relying on its profound accumulation and forward-looking layout in continuous innovation of industrial models and deep market cultivation.

Building An Independent & Controllable Supply Chain to Lead the New Trend of Industrial Upgrading

In the first half of the year, Huitongda Network made "ensuring stable growth with high quality to innovate for a better future" its core principle on work for the year, and achieved significant results in vigorously promoting the transformation and upgrading of its business. Its supply chain capability has steadily increased, driving the continuous improvement of the company's operating quality with the gross profit margin up by 0.5 percentage points year-on-year, demonstrating the effective enhancement of the company's profitability

Specifically, the Group deepened cooperation with top brands in various industries, including Gree, Midea, and AUX in the home appliance industry, new with Siemens and OUTES; Apple in the consumer electronics industry, followed by the upgrading of 1464 O2O stores in towns and villages; BYD, NETA, and SAIC Group in the vehicles and auto parts merchandise industry; VOGELY, Newoasis Wood Floor, etc. in the homebuilding and renovation materials industry; Unilever and others in the cleaning chemicals industry.

This not only solidified the company's position in traditional advantageous areas, but also further enriched its product line and service scope. Compared with other competitors in the market, the Group focuses on six major categories: consumer electronics, household appliances, agricultural means of production, vehicles and auto parts merchandise, homebuilding and renovation materials, and liquor and beverages and is one of the few top service providers that covers large durable goods with a wide range of categories. At present, the Group has established cooperation with over a thousand high-quality brand owners and manufacturers. With the further enhancement of supply chain capabilities, the combination of collective purchasing and marketing models with abundant downstream resources is expected to further strengthen its upstream bargaining power and consolidate procurement costs advantages.

Moreover, the Group expanded its cooperation with resource-based enterprises, such as Ningxia Lanfeng Fine Chemical Co., Ltd. in the agriculture means of production industry; Hainan Agricultural Reclamation Investment Holding Group Co., Ltd. and Xiayi Jinzhan Wood Industry Co., Ltd. in the homebuilding and renovation materials industry. Meanwhile, the Group further deepened cooperation with regional retail enterprises, such as GOME in Northeast China in the home appliance industry. It also entered into strategic cooperation with provincial-level supply and marketing cooperatives in places such as Chongqing, Jiangsu, and Anhui in the agricultural means of production industry, promoting fertilizer-grain integration to support the positive interplay between domestic circulation and international circulation of agricultural means of production.

The Group also actively opened up cooperation with its own brands and resource-based enterprises. In respect of its own brand, the Group has made significant breakthroughs. Its self-designed brand "IDISSA" air conditioner has achieved mass production, with an order volume of over 16000 sets within two weeks of its launch; In the agricultural means of production industry, the Group has established independent and controllable production processes and operational management capabilities by launching the "Acephate" integrated production and marketing project. Through the construction of its own brand and the promotion of integrated production and marketing business, the Group has achieved the implementation of the B2F model of determining the procurement based on demand, the advancement based on demand and production based on demand, greatly improving the efficiency of the entire supply chain in urban and rural areas.

Faced with new changes in the low-tier industry, the Group also built on new industries and categories on the basis of deepening its existing businesses. In the cleaning chemicals daily necessities sector, the Group is simultaneously expanding into high gross profit categories such as personal care, home cleaning, and beauty to further enhance the gross profit level and input-output efficiency; In the new energy sector, the Group has laid out the photovoltaic track and jointly built a distributed green energy industry platform with leading enterprises in the industry.

With the increasing demand for operational efficiency and precise customer acquisition among merchants in the lower-tier retail market, ToB services are expected to further grow in the future. According to estimates from Frost & Sullivan and LeadLeo Research Institute, its market size is expected to reach 9.4 trillion yuan by 2027. It can be foreseen that the layout of these new industries and categories bears new growth points to the Group, and the potential to further enhance its gross profit level and market competitiveness.

Member Service Capability Continues to Strengthen, Digital Construction Accelerates

Huitongda Network has always regarded empowering and serving family-run retail stores in towns and villages as its basic business. The Group continuously improved its the capacity for serving members, and enhanced the stickiness and profitability of member stores. There are about 6.3 million couple stores nationwide, of which 75% are located in lower-tier markets. As a key component of the low-tier market, family-run retail stores demonstrate flexibility, adaptability, and strong vitality due to their small business scale and low cost investment.

With rich experience and market insight, operators have established deep community emotional connections and loyal customer groups, which are important supports for store operation and the power of word-of-mouth communication. In a social environment with strong human touch, family-run retail stores not only provide commodity transactions, but also become places for community residents to communicate and express emotions. They have an irreplaceable position in the low-tier market and serve as the terminal for commodity circulation and the link for community cultural preservation and emotional connection.

Therefore, for industrial Internet platforms such as Huitongda Network, in-depth understanding and empowering family-run retail stores is the key to expanding the low-tier market, improving the efficiency of the supply chain, building industrial ecology and promoting the integrated development of urban and rural areas. By providing digital tools, supply chain resources, marketing training, and other support, the Group helped family-run retail stores transform and upgrade, improved operational efficiency and profitability, and explored vast opportunities in the low-tier market.

Data shows that in the first half of 2024, the Group's service business revenue increased by 12.0% year-on-year, SaaS+ subscription users increased by 5.1% year-on-year, paid SaaS+ users increased by 28.8% year-on-year, and store SaaS+ subscription revenue increased by 13.6% year-on-year. The growth of these data not only reflected a significant improvement in the Group's capacity for serving members, but also highlighted the enormous potential of the retail industry in the lower-tier market.

To further improve the operational efficiency of member stores, the Group has developed and upgraded its system tools with a focus on "hot products+AI", and adhered to going deep into the front line to organize high-frequency and effective training and activities. At the same time, the Group continued to promote key customer service, expanded the network and coverage of member stores, providing better products, tools, marketing, training, and data empowerment for member stores.

In respect of digital construction, the Group has always been at the forefront of the industry in building an industrial trading platform to help brand manufacturers reach the low-tier market, and deeply applying AI technology to optimize service efficiency.

By launching functions such as "digital human livestreaming studio" and "multi-level marketing", the Group gradually opened up platform warehousing and logistics services to merchants, and cooperates with "production and marketing integration" to build an online order collection and production scheduling system. The application of these digital tools improved the operational efficiency of the company, and also brought more convenience and revenue to the member stores.

In Summary

Admist the current market environment where the omnichannel transformation wave of online and offline integration sweeping the retail industry in the low-tier market, Huitongda Network is proactively adapting to this trend and seizing unprecedented development opportunities by virtue of its unique supply chain integration, robust capacity for serving members, and forward-looking layout of digital construction. Through deepening strategic partnerships with leading brands in various industries, the Group has not only consolidated its existing market position, but also boldly explored new industries and categories, and successfully launched its own brand business. This series of measures significantly enhances its market competitiveness and lays a solid foundation for its long-term development.

The sustained business innovation capability demonstrated by the Group is the key to its continuous progress in the market environment. This innovation capability is both reflected in the optimization and upgrading of existing businesses, and in the ability to keep a closer eyes on market change and timely capture emerging opportunities for continuous business model innovation to comply with market development.

Looking ahead, the Group will stay true to its original aspiration and continue to focus on the three core strategic directions of supply chain optimization, member store empowerment, and digital upgrading, to further deepen industrial upgrading and digital transformation. On the path towards high-quality development, the Group is steadily forging ahead with richer returns for shareholders and better service experiences for customers, and advancing toward a great future.