The suspension has been for nearly 20 days, $BABA-W (09988.HK)$ the group has made progress in selling $SUNART RETAIL (06808.HK)$ recently.

Sunart retail announced last night (15th) on the Hong Kong Stock Exchange that the board of directors received a contact letter from a potential offeror on September 27, 2024, expressing their intention to make a voluntary conditional general offer for all the issued shares of the company subject to certain preconditions.

It is reported that Alibaba Group indirectly holds approximately 73.66% of the issued share capital of sunart retail through a wholly-owned subsidiary, while New Retail Strategic Opportunities Investments 1 Limited holds approximately 5.04%.

"At present, the Alibaba Group is in discussions with other relevant parties, but has not reached any agreement or transaction." Sunart retail stated in the announcement that there is no further progress on the equity transaction information that needs to be disclosed at the moment, and will disclose further progress according to relevant regulatory requirements.

It is worth mentioning that previously in the market rumors, sunart retail has attracted interest from private equity investments, potential buyers include Dehong Capital, Hillhouse Capital, and Runtai Group.

In response, sunart retail stated in the announcement that the potential offeror has no relation with sunart retail or any related parties of the company. Reporters from the Science and Technology Innovation Board Daily contacted sunart retail and Hillhouse Capital for verification. As of the time of publication, there has been no response from both parties.

SunArt Retail opened today, soaring by 30.72% to HK$2.34. As of the time of writing, it closed at HK$2.03, up by 13.41%, with a market cap of 19.356 billion HK$.

Intending to exit, Alibaba focuses on its core business.

Suning Retail issued a positive profit warning last night (15th), expecting a post-tax profit of approximately 0.15 billion yuan to 0.2 billion yuan for the first six months ending on September 30, 2024, while the post-tax loss in the same period last year was RMB 0.378 billion.

This is also the first profit warning handed over by Alibaba's senior executives Lin Xiaohai when the veteran Shen Hui returned.

The reporter of the Star Market Daily noticed that since being acquired by Alibaba, Darunfa and its parent company Suning Retail have experienced significant performance fluctuations.

In November 2017, Alibaba announced an investment of 22.4 billion Hong Kong dollars, directly and indirectly holding 36.16% of Suning Retail's shares. In 2020, Alibaba increased its investment again, directly and indirectly holding 72% of the equity, gaining full control of Suning Retail.

The acquired Suning Retail has become Alibaba's "new retail experimental field". Alibaba deliberately selected Lin Xiaohai, who has experience in fast-moving consumer goods internally, took over from Huang Mingduan as the CEO of Suning Retail. During his tenure, Lin Xiaohai proposed a "multi-format omni-channel" strategy, completed the supply chain empowerment of fresh self-operated through digitalization and organizational innovation. So far, Suning Retail owns three main format brands: Darunfa, Darunfa Super, and M Member Store.

However, apart from achieving positive growth in the year of acquisition, from the fiscal year 2018 to the fiscal year 2023, Suning Retail showed a declining trend in total sales revenue, income, and operating profit. The revenue scale shrank from 101.315 billion in fiscal year 2018 to 72.567 billion in fiscal year 2024; the net profit attributable to the parent company were 2.588 billion, 2.834 billion, 2.872 billion, -0.826 billion, -0.739 billion, 0.109 billion, -1.668 billion respectively, indicating the highest profit in the fiscal year 2020 and the largest loss in the fiscal year 2024.

According to the latest financial report disclosure, in the fiscal year 2024, Suning Retail closed 20 large stores.

Amid closures and losses, RT-Mart has repeatedly been rumored to be up for sale. In March of this year, there were reports that "Alibaba will sell RT-Mart to COFCO". Although RT-Mart denied the rumors, Alibaba, determined to focus on its core business, explicitly stated that they "will gradually withdraw from non-core physical retail."

Alibaba Group Chairman Cai Chongxin stated in the third quarter financial report of the 2024 fiscal year, "We still have some traditional physical retail businesses on our balance sheet, which are not our core focus. If we can complete the exit, it would also be very reasonable."

During a previous financial performance conference call, in response to investors' concerns about Alibaba Group seeking to sell its RT-Mart assets, SunArt Retail management responded that communication with Alibaba has been very smooth. If SunArt Retail needs any of Alibaba's resources, Alibaba will fully support them. SunArt Retail is also market-oriented and independent, so if there are good partners in the market, SunArt Retail can fully cooperate. Therefore, our relationship with Alibaba is very open and supportive, independent and supportive at the same time.

Zhuan Shuai, founder of Bailian Consulting, stated in an interview with the "Star Market Daily" that Alibaba's acquisition of Intime and RT-Mart, among other physical retailers, had immense value at the time for promoting brand entry on Tmall, digitalizing retail industry, and introducing real-time retail innovation into physical retail.

However, in Zhuan Shuai's view, besides Intime's fashion brands assisting Tmall's rapid development in the early days, some physical retail businesses have become a burden with recurring losses.

SunArt Retail continues its 'self-rescue' efforts.

The decline of traditional chain supermarkets has become a common trend.$Walmart (WMT.US)$Carrefour, Walmart,$Yonghui Superstores (601933.SH)$and other traditional supermarkets are seeking solutions, with RT-Mart also initiating a series of self-rescue measures.

At the end of March this year, Lin Xiaohai resigned as CEO, and veteran Shen Hui took over as Executive Director and CEO of SunArt Retail, with Huang Mingduan remaining Chairman of the Board.

In addition to personnel adjustments, Sunart Retail is also making adjustments to its business formats. According to the Star Market Daily, over the past year, Sunart Retail has closed some stores, but at the same time has been expanding new stores, adjusting its operational strategy. The most obvious change is that in recent years the company has been placing more focus on 'Zhongrunfa' (Carrefour Superstores) and 'M Member Stores.'

Financial report data shows that in the 2024 fiscal year, Sunart Retail opened 6 Carrefour hypermarkets, 14 Carrefour Superstores, and 3 M Member stores, covering all 29 provinces and autonomous regions in the country, with a total of 507 stores opened in 212 cities.

Regarding future investment plans, in the latest fiscal year financial report, Sunart Retail stated that it is expected to invest around 1.2 billion in business expansion this year, which will be divided into two parts: one part for opening large and medium-sized supermarkets and expanding member stores; the other part for updating store equipment.

For large and medium-sized supermarkets, the company plans to expand in various regions nationwide, no longer limited to East China; member stores will mainly develop in second and third-tier cities in East China, with plans to open four stores this year in cities such as Wuxi, Changshu, and Jiaxing.

In addition, Carrefour is actively expanding its online business, utilizing its own APP, Carrefour Youxian, and other platforms to provide consumers with a more convenient shopping experience. The financial report shows that the self-owned APP Carrefour Youxian accounted for approximately 36% of online B2C revenue during the reporting period, with a 4.8% year-on-year increase in total online B2C orders.

At the latest financial report conference call, the Sunart Retail management mentioned that they will also launch cross-border shopping and other businesses in the future.

"The retail industry is a very competitive one, and will continue to be in a state of long-term change in the future." Zhuang Shuai told the Star Market Daily reporter, indicating that the industry is actively exploring new models and formats.

He believes that traditional retailers transitioning to new retail need four key adjustments: first, reconstruct the profit model, shifting from fee collection to membership fees and product commissions; second, optimize organizational structure and incentive mechanisms to stimulate innovation; next, adjust product structures and selection modes, introduce a buy-hand system, and enhance in-house brand development; finally, build a member-centric fully digital operation and supply chain system, achieving precision marketing and efficient operations.

Editor/Rocky