HUITONGDA NET 2024 H1: Three major strategies drive industrial upgrading, performance can be expected in three dimensions

In a challenging consumer environment this year, on one hand, the real estate industry continues to bottom out, with sales in the first half of the year dropping by over 40%, significantly reducing surrounding consumer demand. On the other hand, consumer spending is weak. According to data from the National Bureau of Statistics, the total retail sales of consumer goods in the first half of the year only saw single-digit growth, with retail sales at department stores and brand specialty stores both declining. The performance reports released by listed companies in sectors such as catering, home appliances, supermarkets, and e-commerce all reflect a trend of economic recovery slowing down.

The management of the largest domestic e-commerce platform has repeatedly mentioned at the first-half performance meetings about the slowdown in revenue growth and declining profits. This not only indicates intense industry competition but also the operational pressure brought by changes in the external business environment.

Against this backdrop, HUITONGDA NET (09878), a leading industrial internet company, has actively responded to challenges by proactively adjusting its strategies, focusing on optimizing industrial structure, promoting high-quality business development, achieving innovative changes in transaction business, and stabilizing and improving various indicators in service business.

According to Zhitong Finance APP, on August 28th, HUITONGDA NET released its financial report for the first half of 2024, achieving operating income of 32.86 billion RMB, gross profit of 1.15 billion RMB, and adjusted net profit attributable to the parent company exceeding 125 million RMB. The operational quality steadily improved during the period, with a 0.5 percentage point increase in gross profit margin, and continued positive operating cash flow exceeding 248 million RMB. As of June 2024, the company had 9.9 billion RMB in cash on hand (including time deposits, pledged deposits, and cash equivalents).

HUITONGDA NET is a leading industrial internet company deeply cultivating the sinking retail market, empowering township mom-and-pop stores through digital technology and supply chain capabilities. Its business model mainly involves connecting major brands in the industrial chain and bridging urban-rural circulation markets through township mom-and-pop stores to reach end consumers with branded products. As of June 2024, the company has established a retail ecosystem covering 21 provinces and municipalities in China and over 25,000 townships.

Three major strategies drive industrial chain upgrading, slowing down in the curve does not affect long-term development

In the first half of this year, the company made full efforts to promote industrial upgrading, build independently controllable supply chain capabilities, expand high-margin and more promising sub-categories and industry tracks to cope with external environmental challenges.

Firstly, the company deepened cooperation with top brands in various industries, including Apple in the consumer electronics industry, Midea and Gree in the home appliance industry, BYD and NIO in the transportation industry, and Unilever in the cleaning industry. At the same time, the company explored new cooperation opportunities with resource-based enterprises and regional retail companies, continuously enriching industry chain resources and enhancing platform competitiveness.

Secondly, it vigorously developed its own brands, achieved the landing of the B2F model based on demand-driven procurement, production, and sales through the construction of its own brand and integrated production and sales business, significantly improving the efficiency of the entire urban-rural supply chain and accumulating new capabilities for the company's long-term stable development. For example, in the home appliance industry, HUITONGDA's own brand "Altisha" air conditioners achieved mass production, with orders exceeding 16,000 sets in the first two weeks of listing, and the integrated production and sales volume of the "Zhonghuida" smart manufacturing factory continued to rise. These data all demonstrate the success of the own brand strategy Finally, it is about developing high-margin products and tracks. In the context of a downturn in consumer markets, actively expanding into high-margin new industries and categories to enhance the quality of profits, such as in the daily washing and personal care industry, simultaneously expanding into high-margin categories such as personal care, household cleaning, and beauty products; in the new energy industry, laying out the photovoltaic track and jointly building a distributed green energy industry platform with industry leaders.

The three major strategic initiatives effectively promote the high-quality development of HUITONGDA NET's main business. However, when developing high-margin businesses are in a curve stage, it chooses to moderately "slow down" to accumulate "momentum" for long-term development.

From the data perspective, in the first half of 2024, HUITONGDA NET's trading business segment revenue was 32.39 billion yuan, accounting for 98.6% of operating income. During this period, revenue from consumer electronics, household appliances, agricultural production materials, transportation, and home building materials accounted for 60.3%, 13.3%, 12.8%, 8.9%, and 3.1% of the business, respectively. The revenue of each business segment is affected by the overall environment, but the number of member stores is still growing. As of June 2024, the company has registered a cumulative total of over 246,000 member retail stores, a year-on-year increase of 13.2%. The number of active member retail stores exceeds 92,000, a year-on-year increase of 19.3%, and the revenue from member retail stores has increased to 43.8%.

Township couple stores are the core of performance. The company empowers township couple stores through supply chain capabilities and digital technology to enhance the stickiness of member stores, help them expand their business, and consolidate their foundation. This not only creates revenue growth opportunities for various trading business segments but also creates a new growth curve.

HUITONGDA NET provides store SaaS+ services for the upstream and downstream of the industrial chain. In the first half of the year, the revenue of this service segment was 380 million yuan, a 12% year-on-year growth against the trend. During the period, the company has accumulated over 127,000 SaaS+ subscription users, a 5.1% year-on-year increase, nearly 48,000 paid SaaS+ users, a 28.8% year-on-year increase, achieving SaaS+ subscription revenue of 310 million yuan, a 13.6% year-on-year increase, further increasing the stickiness of member stores.

In terms of empowerment strategy, the company continues to advance the two major strategies of "member services and digital construction" to empower the high-quality operation of township couple stores. In terms of member services, it promotes the continuous upgrading of SaaS+ products, efficiently empowers store digital management, precise member marketing, etc.; conducts joint promotional activities with brand manufacturers, holding a total of 6 national promotion events in the first half of the year, covering 27,000 personalized store activities; promotes the strategy of serving major customers, and has now reached deep cooperation with over 60 government-enterprise customers, brand manufacturers, and chain businesses. In terms of digital construction, it continues to upgrade the industrial trading platform, launching functions such as merchant live broadcast rooms, commodity inquiry transactions, etc., promoting technological innovation, strengthening the application of cutting-edge technology, enhancing the AI review function of goods, automatically generating product information, improving the speed of product shelving, and service efficiency.

Performance expectations brought by three dimensions, grasping the development opportunities of the next decade

Overall, HUITONGDA NET actively responds to external environmental challenges, achieves steady performance and high-quality profit development through internal structural adjustments, business innovation, and continuous empowerment of the "foundation." Looking ahead, the company's performance is expected to have three dimensions: There is a huge space for the release of consumer demand in the first dimension. This year, the main reason for the decline in consumption is that residents are holding cash due to concerns about the economic environment. Data shows that in the first half of this year, the income growth rates of urban and rural residents both exceeded the growth rate of social retail sales. Residents' deposits have reached a new high in ten years, with household deposits reaching as high as 9.27 trillion yuan. Urban and rural convenience stores connect urban and rural commodity circulation, with a wide coverage of stores, especially under the promotion of the "consumption going to rural areas" policy, more demand will be tapped into, releasing residents' consumption willingness.

The second dimension is the opportunity for new growth driven by industrial transformation. The proposal of new productive forces accelerates the arrival of the AI era, where AI will dominate the development cycle of the next decade. Product iteration speeds up the consumption cycle of residents, especially for consumer electronics products, in which HUITONGDA NET has a high market share in the consumer electronics sector. In addition, in June of this year, Premier Li Keqiang emphasized at the Summer Davos Forum with the theme of "New Frontiers of Future Growth" that we should seize the significant opportunities of the new round of technological revolution and industrial transformation, seek our own reasonable interests in expanding the cake together, and explore new sources of economic growth.

The third dimension is the high stickiness and irreplaceability of the company's rural convenience stores. HUITONGDA NET has solidified the foundation of "rural convenience stores" through multiple strategies, building a strong competitive barrier in scale. The company insists on serving the sinking market, as a leading target in urban-rural circulation, fully benefiting from the development window of urban-rural economy under industrial transformation. By taking industrial upgrading as an innovative driving force, it promotes the efficiency upgrade of supply chains in multiple industries and the entire chain, supporting rural revitalization while achieving long-term and sustainable growth in parallel with the manufacturing end brand factories and retail end rural convenience stores.

It is worth noting that the company actively rewards shareholders. In July of this year, through the proposal of formulating the "Shareholder Dividend Return Plan for the Next Three Years (2024-2026)", the company will adopt a cash dividend ratio of not less than 15% of the distributable profits achieved in the current year. In addition, if the company's profitability maintains rapid growth and achieves a year-on-year growth in net profit attributable to the parent company of over 60% for two consecutive years, a special cash dividend plan for the current year will be initiated to further increase shareholder dividend returns.

In conclusion, HUITONGDA NET adheres to the path of sustainable high-quality development. In the unfavorable external environment, slowing down in the curve is for better acceleration in the future, while seizing the industrial transformation and development opportunities brought by the "new productive forces", firmly establishing its leading position in the industrial internet, the future is promising