Incidents:
On May 21, 2024, the company issued the “Significant Asset Purchase Report (Draft)”. It plans to purchase 100.00% of Tongtuo Technology's shares held by Huading Co., Ltd. with 700 million yuan in cash and sign the “Share Acquisition Agreement”.
After the transaction is completed, Tongtuo Technology will become a wholly-owned subsidiary of the company and included in the scope of the company's consolidated statements.
Tongtuo Technology mainly sells products in the household category, and its sales channels cover independent websites and third-party platforms 1) Tongtuo Technology's main business is B2C cross-border e-commerce exports. The sales products are mainly household and electronics. The main business revenue in '23 was 78.78%/17.09%, respectively. 2) Tongtuo Technology uses third-party e-commerce platforms and TOMTOP's own website to sell products to overseas end consumers, forming a “pan-channel” and “pan-category” sales model. In 2023, Amazon, AliExpress, Meikeduo, eBay, and Shopee accounted for 48.87%/14.29%/8.21%/5.26%/4.63% of the main business revenue, respectively. 3) In terms of performance, Tongtuo Technology previously estimated bad debt reserves due to the impact of Amazon's “blocking wave” in 2021 and Paypal's seizure and freezing of funds, which put pressure on business performance. The revenue for 2022/2023/2023/2023/2024 Q1 was 3.447 billion yuan/3.413 billion yuan/779 million yuan, respectively; net profit was -310 million yuan/-100 million yuan/-0.2 billion yuan, respectively.
After the transaction was completed, the size of the company's SKU was significantly expanded, and Huakai Ebay's upstream bargaining power was further enhanced to implement the three “Pan-Product+Premium+Yimai Ecological Platform” parallel strategies. After the transaction was completed, the SKU scale of the Pan-Product business was significantly expanded. While expanding market share, Huakai Ebay's ability to control the upstream supply chain and bargain ability will also be further enhanced. The purchase price of goods and logistics services is an important factor in determining the gross margin level of cross-border e-commerce companies. As the SKU scale expands, the company is expected to reduce costs and increase efficiency from the supply chain side and enhance profitability.
Profit Forecasts, Valuations, and Ratings
After Huakai Ebai acquires Tongtuo Technology in the future, it is expected to complement each other's advantages by integrating the existing supply chain channels, business resources and technical advantages of both parties, thereby enhancing the overall competitiveness of the cross-border e-commerce business. We expect the company's revenue for 2024-26 to be 85.27/105.31/12.591 billion yuan, respectively, with corresponding growth rates of 30.82%/23.50%/19.56%; net profit to mother of 4.50/5.78/ 672 million yuan respectively, corresponding growth rates of 35.47%/28.45%/16.30%, EPS 1.11/1.43/1.66 yuan/share, respectively, and a 3-year CAGR of 26%. Referring to comparable companies, we gave the company 16 times PE in 2024, with a target price of 17.78 yuan, maintaining a “buy” rating.
Risk warning: Overseas economic fluctuations; RMB exchange rate fluctuations; the Red Sea crisis continues to ferment.