Incidents:
On August 28, 2023, the company announced the 2023H1 financial report. 2023H1 achieved revenue of 43.38 billion yuan (YoY +6.6%), gross profit of 1.29 billion yuan (YoY +7.9%), net profit of 383 million yuan (YoY +68%), and net profit of 245 million yuan (YoY +118%). On May 5, 2023, the company completed the acquisition of Nanjing Haoxiangjia Engineering Group for 504 million yuan.
Key points of investment:
Overall performance: 2023H1 The company faced macroeconomic challenges. The revenue growth rate was disrupted to a certain extent, but the profit side performance was good. Among them, 1) the steady restoration of the transaction business mainly benefited from the contribution of consumer electronics, transportation and household appliances revenue, and the increase in revenue share from member retail stores brought about by customer restructuring and optimization; 2) The revenue side of the service business was slightly pressured, mainly due to adjustments in the business strategy of merchant solutions. In the first half of the year, it focused more on digital solutions for independent technology product lines, reducing some low-margin precision marketing services, but Drive an increase in the gross margin of the overall solution to a certain extent.
Trading business: 2023H1's trading business segment revenue increased 6.7% to 42,988 billion yuan (YoY +6.8%), of which self-operated business revenue increased 6.7% to 42,988 billion yuan, with a cumulative total of more than 217,000 registered member retail stores (YoY +13.5%), mainly due to ① post-pandemic market demand and gradual recovery of manufacturers' production capacity and logistics, and the contribution of rapid growth in consumer electronics, transportation and household appliances revenue; ② customer structure adjustment and optimization; 77,500 active member retail stores (YoY +18.8%) from members The revenue share of retail stores has steadily increased; ③ Brand cooperation has deepened, and the brand matrix has been enriched. 2023H1 has reached authorized cooperation with leading brands such as Apple, Lenovo, BYD and Unilever, and the headquarters supply chain share continues to rise to 55%; however, part of the increase was offset by falling revenue from agricultural, alcohol, and building materials. The main reason is that upstream prices in the agricultural sector fluctuate greatly, and the prosperity of the liquor and building materials industry is low. The company has taken the initiative to reduce its related business.
Service business: The 2023H1 service business segment has revenue of 343 million yuan (YoY -5.8%), of which store SaaS+ subscription business revenue is 270 million yuan (YoY +2.5%), the company has a cumulative total of 121,000 SaaS+ subscribers (YoY +9.4%), 37,000 paid SaaS+ users (YoY +37.4%), and merchant solution revenue of 73 million yuan (YoY -27.6%). It mainly consists of 1). The company collaborates with brands and manufacturers to actively carry out marketing activities to empower member retail stores For example, during the 618 period, online orders at member retail stores increased 82.6% year on year, trading fans increased 69.2% year on year, and GMV increased 206.2% year on year; 2) member store network expansion, member retail store stickiness continued to increase, SaaS renewal rate reached 68%, and customer satisfaction exceeded 95%; 3) launched SaaS+ products closer to the needs of member store users, upgraded the comprehensive solution to multi-scenario SaaS+ products, rich subscription payment systems, and lowered the membership store payment conversion threshold.
The gross margin of the service business increased by 9.0 percentage points compared to the same period last year, mainly due to strategic adjustments in merchant solutions business strategies. ① The focus on digital solutions with independent technology product lines has reduced some precision marketing services with low margin; ② the focus of the software business has shifted from joint delivery to independent delivery, helping to increase gross margin.
Formally lay out the “AI+ scenario” and launch intelligent shopping guide AI, marketing planning AI, and “Thousand Orange Digital People”: Based on the big data and big language model technology of the sinking market accumulated over many years, the company created a big model with Huitongda's business characteristics, officially laid out the “AI+ scenario”, launched the first batch of AI+ product portfolios of AI+ marketing planning AI+ digital people to serve member stores, supply chain partners and upstream manufacturers. Among them, intelligent assistants such as intelligent shopping guide AI and marketing planning AI can provide purchasing strategies and marketing strategy suggestions for member retail stores to reduce the operating burden of member retail stores; AI digital is a “thousand orange digital people”, which can be applied to scenarios such as product promotion, shopping guide, live streaming, event marketing, etc., to help customers improve video production efficiency, reduce labor costs for content operation, and expand new business growth points.
Profit forecast and investment rating: Considering that consumption power in sinking regions is still recovering, we expect the company's revenue for 2023-2025 to be 908/1082/132.7 billion yuan, net profit to parent, 52/7.0/86 billion yuan, and corresponding diluted EPS of 1.02/1.39/1.70 yuan; according to the SOTP valuation method, we gave Huitongda a total target market value of 20.7 billion yuan, corresponding target price of 37 yuan/HK$40, covered for the first time, and gave it a “buy” rating.
Risk warning: Macroeconomic growth falls short of expectations; B2B industry growth falls short of expectations in sinking regions; SaaS promotion penetration in sinking regions falls short of expectations; growth in the number of member retail stores falls short of expected risk; AI application empowerment results fall short of expectations, etc.