The company's recent situation
Recently, we invited Huitongda to attend CICC's 2023 Mid-Term Strategy Meeting. The company shared the latest developments in its business, including the development of different categories, cooperation with upstream brands, and the provision of a full-link service system for downstream stores.
reviews
The sinking market remained resilient, and the consumer electronics, transportation, home appliances, and building materials industries maintained steady growth. Although the overall external environment has not been completely repaired, the company believes that the sinking market still has good resilience; furthermore, the regions and categories of the company's layout are sufficiently scattered, and we think it may effectively hedge uncertainty.
The company expects revenue to increase by around 20% in the first 5 months of 2023. Looking at specific industries: The consumer electronics, transportation, home appliances, and building materials industries, which account for a relatively high share, have maintained steady growth. In the mobile phone category, Apple cooperates closely with Huitongda to cultivate the sinking market. The company expects that small stores may gradually pay off from their investment in Apple product counter displays and sales staff training; at the same time, Huitongda is actively expanding 3C devices such as security, networks, and intelligence, and deepening cooperation with Dell and iFLYTEK. The company expects that beverages and beverages will be under pressure due to high inventories in the industry, and that the upstream prices of agricultural materials will fluctuate, but the negative impact of these categories may be relatively limited.
Continuously optimize upstream brand cooperation. 1) Increase direct procurement ratio: The company continues to strengthen cooperation with leading brands. Currently, direct procurement accounts for 50%, and the company plans to increase the direct purchase ratio by 10 percentage points each year. We believe this move is expected to increase the company's control over upstream, and the profit structure is expected to improve. 2) Supply chain business model upgrade: The company continuously optimizes supply chain capabilities and shifts from supply-driven to demand-driven to meet special and customized needs. At the same time, the company actively co-builds brands with manufacturers and builds its own white-label products, independent of the manufacturer's existing prices and systems. We believe this move is expected to achieve a multi-faceted balance of brands, prices, and channels.
Deepen member store services and tap the value of existing member stores. The company gradually moved from large-scale expansion to digging deeper into the value of member stores. The company is committed to increasing the density of member stores in a single province, and focuses on achieving endogenous development of established member stores. In addition to supply chain services, the company expects to deeply serve stores through the SaaS business to provide a variety of drainage methods, such as small gifts, red envelopes, “flash sales”, etc. At the same time, the company expects to develop agents with strong local influence and understand farmers' needs, to deeply link small store owners and farmers based on second-degree networking, and strengthen price advantages by strengthening the in-depth service of small stores, enhancing the core capabilities of the supply chain, and enhancing price advantages. The company expects Huitongda's average penetration rate in small store purchases to 20% in the future (currently around 10%).
Profit forecasting and valuation
Currently, the company is trading at a 2023/2024 non-GAAP price-earnings ratio of 27 times/18 times. We maintain our revenue and earnings forecasts for 2023 and 2024. We maintained an outperforming industry rating and maintained a target price of HK$49.8 based on SOTP. The adjusted price-earnings ratio corresponding to 2023/2024 was 43/28 times, corresponding to an upward margin of 60.4%.
risks
Macro consumption is weak, and competition in the sinking market is intensifying.