[Laotami BL Production _ Product Export M: ARFA Y2 Exhibition] Driven by China, the industrial chain advantages still benefit from domestic manufacturing advantages and growing demand from emerging economies, and China's share of exports to developing countries and regions is gradually increasing. Looking at the category structure, after 2008, the share of China's labor-sensitive exports remained stable at 17%-20%, and the basic manufacturing advantage was still significant; at the same time, the global market share of China's labor-sensitive products increased steadily from 11% in 1995 to 43% in 2023, especially in some developing countries; while the global market share of Vietnam's labor-sensitive products was 5.4% in 2022, and India was only 2.9% in 2023. Yiwu Commodity City is the world's largest small commodity distribution center, backed by an excellent labor-intensive industrial cluster. With the support of the 1039 export policy, Yiwu's export growth rate was higher than that of the whole country in most years, and export destinations are scattered, and the overall resilience of foreign trade to risks is strong.

Market business: high visibility, sharp rise in volume and price

The marketing business is one of the company's main businesses. The revenue comes from commercial office usage fees, and a market-based rent system has gradually been formed throughout history.

In order to adapt to market changes, the company built a differentiated pricing model for office rents. At the end of 2023, rents for some expired business positions increased by an average of 5.5%, and the growth rate is expected to be no less than 5% over the next three years. In view of the market-based subleasing system and the favorable market conditions in Yiwu, rent increases may be sustainable to a certain extent. At the same time, the auction prices for new stores entering the market are high, reflecting the continued activity of the market. After the launch of the new global digital trade center market, market operations may benefit from sharp increases in volume and price to achieve superior growth.

Trade services business: strategic transformation, accelerated growth

Chinagoods platform: The B2B foreign trade e-commerce service platform gradually evolved from a single display and transaction function in the early days to a comprehensive foreign trade service platform. Through promotion, logistics, finance, operation and other service project upgrades, membership fees were increased, user size was increased, and platform revenue growth was driven by rapid growth; however, establishing brand awareness in the early stages required more investment in sales expenses, and profit flexibility was often only released during the platform's maturity period. Comparatively, the advantages of the Chinagoods platform are: 1) the company has operated the market exclusively for 31 years, and has a deep understanding of the entire foreign trade chain to promote service project development and accurate demand matching; 2) the number of merchants in the market exceeds 0.075 million, and fees can still be further increased, and revenue has a lot of room for growth; 3) merchants have formed a high level of recognition and trust in the company, reducing promotion and drainage costs, and profits may achieve relatively rapid growth. Charity payments: Cross-border RMB settlement amounts have increased rapidly in recent years. The B2B payment industry barriers for cross-border exports are high, and there is plenty of room for improvement in the penetration rate of non-bank institutions. Compared to peers, while achieving high gross margins, cross-border payment platforms also need to maintain large expenses in marketing and promotion, technology research and development, and daily operation and management. In addition to R&D expenses, various other relatively variable expenses are therefore reflected in profit-side scale effects, which may be more dependent on the establishment of brand awareness and the reduction of variable cost rates in the medium to long term after the service ecosystem is improved. Compared with peers, the advantages of free payment are that it focuses on B2B, achieves rapid profits, has more room to improve penetration rate, and has more prominent scale effects and growth potential.

Investment advice: optimistic about the certainty of performance growth under two-wheel drive

The company has been exclusively operating the world's largest small commodity distribution market for 31 years. In recent years, it has successfully transformed from a “traditional commercial property management enterprise” to a “comprehensive foreign trade service enterprise”. On the basis of Yiwu's high export popularity and visibility, the traditional main business is expected to achieve rapid growth in volume and price through rent increases and area expansion; at the same time, new businesses represented by the Chinagoods platform and e-payment have rapidly achieved profits in the early stages. Along with service upgrades and increased penetration rates, there may be more room for medium- to long-term growth. We are optimistic about the certainty of the company's profit growth under two-wheel drive in its traditional main business and new business. We expect the company's EPS to reach 0.54, 0.69, and 0.93 yuan in 2024-2026, maintaining a “buy” rating.

Risk warning

1. New project construction or investment fell short of expectations; 2. Demand for small commodities in some overseas countries weakened; 3. International trade disputes intensified; 4. Profit forecasting assumptions were unfounded or fell short of expectations.