Company Background: Huicong Group provides BtoB e-commerce services. The company has three main lines of business: information services, transaction services, and data services. As of June 30, 2018, the company's business was divided into the following segments: a) information services, which mainly include the provision of online services through “hc360.com” and “zol.com.cn”, as well as seminars and other services; b) transaction services, mainly including B2B trading platforms and financial services; c) data services, mainly including anti-counterfeiting products and services, supply chain management and pre-marketing services using digital big data and tools; d) O2O commercial exhibition center, which mainly includes property sales and property leasing and management services.
Net profit increased 78%; revenue growth accelerated in the second half of the year. Huicong Group's net profit for the first half of 2018 increased 77.6% year-on-year to RMB 191 million, higher than the 30-50% year-on-year level stated in Yingxi announced on August 3, 2018. The company's turnover in the first half of 2018 increased 182.3% year on year to RMB 37.888 billion, mainly because: a) transaction service business turnover increased 510% year on year; b) data service business revenue increased 65.7% year on year. The turnover of the information business increased 5.8% year-on-year in the first half of 2018. However, the turnover of the O2O business fell 76.7% year-on-year in the first half of 2018. The EBITDA of Huicong Group in the first half of 2018 was approximately RMB 364.2 million, up from RMB 333.8 million in the first half of 2017. The strong year-on-year increase in revenue from the transaction services business was due to the penetration of Huicong Group's business into the industrial Internet and the beginning of generating transaction service revenue, which also contributed to the rapid growth of the data service business. Management said that the company's revenue growth in the first half of 2018 was limited to some extent by the Chinese government's deleveraging. However, given current progress, management is optimistic about the outlook and expects strong month-on-month revenue growth in the second half of 2018. The company also announced major deals involving major companies such as CNPC in early 2018.
Three vertical industry internet platforms contributed to strong growth. “Focus” and “heavy vertical” are key strategies of Huicong Group in the trading services sector. In the first half of 2018, the company's three vertical industrial internet platforms “Union Cotton” (Union Cotton, the company completed 51% holding in April this year), the company invested in “Zonmoo.com” (www.zonmoo.com), “Buy Plastics”, and a supply chain finance integrated service platform all contributed strong revenue growth to the company's transaction service sector. “Buy Chemical Plastics” has developed into a leading B2B platform for the chemical industry in China. Its services cover nearly 1 million enterprises and 8 million website members in China's chemical rubber and plastic industry chain. The platform focuses on spot trading of chemical rubber and plastic products. Sales revenue in the first half of the year exceeded RMB 17 million. ibuychem.com will continue to deepen its shopping mall data business, improve the efficiency of publishing and matching information supply and demand, increase the frequency of product and capital flows, increase brokerage business transformation revenue, and maintain transaction amounts and sales revenue. “Cotton Union” provides comprehensive B2B e-commerce services for spot cotton through an online platform, including its own online shopping mall, purchasing financing services and warehouse receipt pledge. In the second half of the year, Mianlian will continue to optimize the e-commerce integrated service platform “Cotton E-commerce Integrated Service Platform V1.0” and the “Cotton Union +” WeChat Mini Program to enhance the online semi-automated transaction experience for customer transactions, improve transaction efficiency, and expand the scale of platform transactions. Through optimizing the ERP function module of the Mianlian e-commerce platform management system, the transaction processing and risk control capabilities of the internal business management system will be improved to create the most efficient online trading platform for the cotton industry. Through cooperation with third-party financing platforms, Dusit completed the design and development of supply chain financing platforms, making it the most convenient online supply chain financing platform for the cotton industry. “Medium Model International” provides customers with a complete service system for new construction models including design, installation, renovation, warehousing, etc., and unifies industry standards. Among them, the standard rate for formwork products was raised to 85-90%, which is 10-15 percentage points higher than the industry's average, which can save 10-15% of maintenance costs including construction formwork.
As one of the important operators of the company's transaction services sector, Shanghai Huijing is deeply involved in 3C, metals and new energy industries. It is a cross-industry supply chain finance integrated service platform that the company has focused on building. Relying on more than 50 industry segments that the company has accumulated over many years, it penetrates all aspects of the supply chain and provides a full range of supply chain financial services. Sales revenue in the first half of the year exceeded RMB 688.6 million.
Our opinion: Huicong Group is one of the few BtoB technology stocks in Hong Kong focused on the e-commerce sector. As its core business is being transformed, the company is expected to enter the next phase of growth. In the services it provides to customers, Huicong Group has now added blockchain technology. The company has changed its business from a subscription-based model to a platform model where transaction services are driving the growth of the information business, thereby driving the growth of data services. Compared to other internet platforms, the company's valuation is not expensive, and Huicong Group has been ignored by investors for a while. The company's interim results and business strategy may attract market attention and enhance the company's stock price performance.
Catalysts: More investor relations activities, news about the company's business needs; announcement of results for the second half of 2018.
