Gelonghui, January 26 | China Galaxy International covered Huitongda for the first time and increased its holdings rating. The target price is HK$37.6. Huitongda is a leading B2B business enterprise in China's sinking retail market. It has huge supply chain advantages and helps township couple stores meet the shopping needs of local township customers through one-stop SaaS solutions. The sinking market has huge potential for growth: China's sinking market (basically all regions with the exception of 49 high-energy cities) is huge, accounting for 95% of the country's land area and 71% of the total population as of 2022. According to data from the National Bureau of Statistics, in 2017-22, the sinking market showed great flexibility in consumption. The average compound annual growth rate of per capita disposable income in rural areas was 8.4%, and the compound annual growth rate of per capita consumption expenditure was 8.7%, all surpassing urban areas (6.2% and 4.5%, respectively). According to industry research institute Leadleo Research, Huitongda's sales in 2022 reached RMB 80.4 billion, with a compound annual growth rate of 28% in 2018-22, and its market share in the sinking B2B retail market reached 1.28%, second only to Alibaba Retail Connect's 1.36% share. Galaxy International analysts believe that Huitongda's huge growth potential is mainly due to its perfect supply chain infrastructure, one-stop SaaS service network, and steady support from the policy side. A mature and perfect business model adapted to the sinking market: After years of development, Huitongda has formed the following advantages in the sinking retail market: 1) A complete upstream supplier network and cooperates with thousands of suppliers, including well-known brands such as Apple, Dell, Lenovo, Heavco, and Oaks. The B2F model is tailored to meet the actual needs of customers in a sinking market. From 2019 to 2022, the average compound annual growth rate of consumer electronics and transportation sales was 47% and 29%, respectively, in the first half of 2023, and contributed 53% and 9% of total revenue respectively; 2) Perfect warehousing and logistics services, Huitongda has more than 350 front warehouses and more than 10,000 vehicles that can provide instant delivery services to member stores; 3) Huitongda's SaaS platform provides one-stop comprehensive services to help solve poor supply chain capabilities, limited customer acquisition channels, single sales channels and scarcity issues such as digital solutions. In the first half of 2023, Huitongda had 217,592 member stores, of which 121,209 (68%) covered SaaS+ subscriptions. The company aims to expand its active customer base by 30,000 people each year between fiscal year 2023 and 2025. As the number of member stores continues to increase, Galaxy International analysts expect an average compound annual growth rate of 11% in sales and a compound annual growth rate of 33% in net profit.