Key points of investment

Performance: Revenue growth remained flat at 0.5% in '23, leading with consumer electronics revenue growth of 19%, agricultural assets under pressure in 2023: Revenue/net profit to mother/adjusted net profit of RMB 824.3/4.5/70 billion, respectively, up 0.4%/42%/7%.

23H2: Revenue/net profit attributable to mothers/adjusted net profit were $390.6/2.0/3.1 billion, respectively.

By business, revenue composition: 99% trading business +0.8% service business in 23 years, and transaction/service business achieved revenue of 81.62 billion yuan, respectively, +0.5%/-18% over the same period last year.

1) Trading business revenue composition: consumer electronics products account for 55% of revenue (year-on-year +9pct) +agricultural production materials account for 15% revenue (year-on-year - 4pct) +household appliances account for 15% revenue (-2pct year on year) +transportation and travel revenue share 9% +household building materials revenue share 4% +alcohol and beverage revenue share 2% +other revenue share 0.2%. Consumer electronics revenue also increased by 19%. The decline in revenue in the rest of the sectors was mainly due to macro-environmental impacts.

2) Service business segment: SaaS+ subscriptions account for 86% of revenue (same increase of 19pct) +merchant solutions account for 14% of revenue (-19pct year over year). The merchant solution business is under pressure mainly because the company adjusts its business structure to reduce low-margin precision marketing and software customization services.

The gross margin of product structure optimization increased steadily and slightly. The cost ratio remained flat at 3.3%/0.9%, respectively, and 0.2/0.2pct, respectively. The increase in gross margin was mainly due to the optimization of the company's business structure; the cost ratio remained flat during the 23-year period, with sales/management/R&D expenses being 1.7%/0.5%/0.1%, respectively.

Supply chain upgrade+expansion of member networks to improve customer operating efficiency 1) Deepen leading brand cooperation, carry out joint activities, and improve the operating efficiency of member stores. The company deepened cooperation with leading brands in various fields such as Apple, Midea, BYD, and Wuliangye, and launched more than 456 joint promotions with 35 core leading brand factories in 23 years to help stores acquire customers and improve the operating efficiency of member stores.

2) Own brands enable production and marketing integration, and online platform cooperation accelerates omni-channel layout. The company has established its own brands such as Zhonghuida Air Conditioning, which focuses on the ultimate cost performance ratio; establishes cooperation with mainstream platforms online, expands member retail stores, service providers and well-known local channel partners offline, and broadens customer sales channels with an omni-channel layout.

3) The membership network is expanding steadily, and the coverage density continues to increase. Member retail stores exceeded 237,000 in '23, an increase of 15%; active stores were 910,000, an increase of 19%. There were 13,000 active channel customers, -25% year-on-year; the number of SaaS+ subscribers was nearly 132,000, an increase of 16%, including more than 48,000 paying users, an increase of 61%.

Profit forecasting and valuation

Huitongda Network is a leading B2B e-commerce company in the sinking market. It is deeply involved in the supply chain and SaaS+ services of sinking retail stores. Considering the short-term pressure on consumer consumption levels, we expect to achieve revenue of 887/987/110.2 billion yuan in 24-26, an increase of 8%/11%/12%, and net profit to mother of 5.53/6.80/ 821 million yuan, an increase of 23%/23%/21%. Corresponding PE is 29/23/19X, respectively, maintaining a “buy” rating.

Risk warning: Consumption capacity recovery falls short of expectations; industry competition intensifies, etc.