Huitongda Network (Stock Code: 09878), with Improved Quality

Huitongda Network (Stock Code: 09878), with Improved Quality, Higher Efficiency, and Steady Progress, Creates a New Chapter of High-quality Development

Since the 19th National Congress of the Communist Party of China proposed the implementation the rural revitalization, China has successively issued a series of documents, forming a relatively complete policy system. In this year's government work report, emphasis was once again placed on persistently promoting the work related to “agriculture, rural areas, and farmers”, thus solidly promoting the comprehensive revitalization of rural areas. Currently, with the mutual integration and promotion of digital China and the rural revitalization strategy, promoting the construction of digital rural areas has become an important breakthrough and measure for rural revitalization, as well as an important part of advancing the construction of digital China.

As an industry Internet company deeply rooted in the lower-tier markets, Huitongda Network (09878) has explored a platform-based service model that empowers rural and small-town retail stores through digital technology and supply chain capabilities. While injecting new vitality into rural revitalization through digital construction, the company has also achieved a remarkable annual "performance report".

On March 27, Huitongda Network released its 2023 annual performance. The data shows that the company's various businesses continued to achieve steady growth during the reporting period, with revenue reaching RMB 82.43 billion (in RMB, same below), demonstrating a stable increase from the previous year; It showed a comprehensive profitability, with net profit attributable to the parent company reaching RMB 448 million, a year-on-year increase of 42%. At the same time, the company maintained a good operating cash flow, with operating cash flow reaching RMB 470 million during the period, achieving a net inflow for five consecutive years.

In the view of Huitongda Network, the steady improvement in performance is inseparable from the company's "three adhering" - adhering to "making farmers' lives better" as its mission, adhering to serving the lower-tier markets as its original intention, and adhering to empowering rural and small-town retail stores with digital technology and supply chain capabilities as its strategy. It is also inseparable from its business model that is tailored to the demands of the lower-tier markets in China and proven to be effective. In the eyes of Zhitong Finance APP, based on this steady and positive annual report, the "Huitongda model" has once again been recognized for its high adaptability and leadership in the lower-tier retail market in 2023.

Innovative Models Drive Growth, Enhancing the Loyalty of Member Stores

Since 2023, with the promotion of various innovative models, the company's member store services have further expanded. While helping rural and small-town retail stores to "grow their businesses", it has also successfully promoted the further expansion of the company's member store network. During the reporting period, Huitongda Network continued to promote the normalized mode of online and offline promotion of "expert client manager", and also innovated cooperation models with multiple provincial supply and marketing cooperatives, local retail companies, and central state-owned enterprises to empower member stores comprehensively.

As of December 2023, the company has added more than 30 thousand new member stores, with a total of 237 thousand stores, a year-on-year increase of 15%, covering a total of 24 thousand townships, benefiting 300 million rural consumers. While the company's business network continues to expand, its services have also gained more recognition from physical stores in townships. During the period, the number of SaaS+ member stores amounted to 132 thousand, representing a year-on-year growth of 16%; and the number of paid SaaS+ member stores amounted to 48 thousand, representing a year-on-year growth of 61%.

According to the Zhitong Finance APP, the steady increase in member store loyalty cannot be separated from the deep implementation of the company's 5+ empowerment. By implementing "5+ empowerment", that is, unifying and integrating "technology", "supply chain", "marketing", "training", and "data" to empower township distribution entities, helping traditional small-town retail stores upgrade to the new type of "Internet +" e-commerce entities with the ability to operate online and offline.

During the period, Huitongda Network implemented "+Marketing" and "+Training" initiatives on a monthly basis, allowing the "expert client manager" team to go deep into the front line, training over 50,000 store-times throughout the year, and covering over 60,000 stores. At the same time, Huitongda Network also joined forces with 35 upstream top brands to organize large-scale promotional activities on the front line of townships, with over 456 activities throughout the year, driving sales to exceed RMB 11.7 billion.

At the same time, in order to strengthen the digital capabilities of member stores, Huitongda Network comprehensively upgraded the retail industry's software and hardware integrated solution centered around "Qiancheng Store Manager". According to the Zhitong Finance APP, Huitongda's "Qiancheng Store Manager" digital solution focuses on store operation management, such as ERP, cashier, chain, new retail, payment, as well as social community fission, membership marketing, and other aspects. It integrates rich scenario functions such as data analysis, operation management, and marketing promotion to help member stores achieve comprehensive improvement in "procurement", "marketing", and "data".

Optimization and Upgrade of Industrial Models, Focusing on Industry-leading Brands

At the industrial end, the company has achieved upgrades in the supply chain business by optimizing industrial models, while building lower-tier channels for partners. It has also conducted online and digital upgrades from the supply side to research and development, production, and manufacturing, which has promoted the domestic economic cycle and has become an exemplary enterprise in nurturing new quality productivity.

Zhitong Finance APP noted that during the reporting period, Huitongda Network's cooperation with industry-leading brands continued to deepen, achieving a steady improvement in supply chain control capabilities, with headquarters supply chains accounting for as much as 51%.

In addition, the company has accelerated its layout in the daily chemical industry, reaching cooperation agreements with industry-leading companies including Unilever. While helping brand merchants quickly penetrate the lower-tier markets, it has also improved the company's profitability, successfully achieving a win-win situation for all parties.

Recently, with the official website of China's State Council announcing the "Action Plan for Promoting Large-scale Equipment Upgrading and the Trade-In of Consumer Goods", another round of the policy-intensive period for the trade-in of old products for new ones may have arrived, which is undoubtedly a major positive event for the home appliance industry. In order to seize opportunities in the industry, Huitongda Network, through its "B2F reverse supply chain", has strategically partnered with Jiangxi Gongqingcheng Qingchuang Group and RongDian Group to participate in product R&D manufacturing, successfully entering the upstream ecosystem of home appliances. During the period, the company launched the "Zhonghuida" air conditioner through the "sale-oriented procurement B2F model", with a planned production capacity of 1 million units per year.

In addition, the company is actively exploring the "circular economy" model in industries such as new energy and agricultural materials. By understanding national policies and industry dynamics, it is simultaneously promoting two dual cycles: "downstream agricultural materials + upstream agricultural products" and "new energy going rural + battery recycling". This not only allows rural consumers to "buy well and spend less" and "sell well and earn more", but also practices low-carbon development model and promotes green sustainable development.

Overall speaking, as the digital rural strategy is further implemented, the huge potential of the lower-tier markets is continuously being tapped. As a pioneer in the industry, Huitongda Network has already secured a place in the fiercely competitive lower-tier markets with its multiple advantages. At the same time, with continuous innovation in its business model, Huitongda Network has established high barriers to competition, and the trend of "the strong getting stronger" is expected to become more evident.

It is worth mentioning that after the equity incentive plan in April 2023, Huitongda Network implemented another equity incentive plan in December 2023, which shows the company's confidence in its future development and recognition of its intrinsic value.

With the continuous efforts from the policy side and the ongoing optimization of its business structure, Huitongda Network's intrinsic value will eventually be recognized by the market. Investors have every reason to be optimistic about Huitongda's future.