The more Wang Jianguo unicorns, the more management loopholes?

Although Wang Jianguo has founded a number of "unicorn" enterprises, enterprises such as Child King have been subjected to administrative penalties for unqualified products many times, reflecting loopholes in the operation and management process.

Wen 丨 BT Finance Lake Ocean

Recently, Huitongda passed the hearing of the Hong Kong Stock Exchange and intends to be listed on the Main Board of Hong Kong.

Huitongda, which cuts from the township retail market and starts with home appliances, sounds a bit strange, but behind it is a big entrepreneur - Wang Jianguo.

Wang Jianguo has been founded for more than 30 years, and has successively founded "China's Top Three Home Appliance Chains - Five Star Electrical Appliances", "China's Listed Mother, Baby and Child Retail Leader - Child King (301078. SZ)", "Sprint HKEx IPO's sinking market retail industry trading and service platform - Huitongda" and "China's leading brand of comfortable smart home - Haoxiangjia" and many other unicorn enterprises.

He is also a big man in the venture capital circle, earlier with Ma Yun and others co-founded Yunfeng Fund, the founder of Xingnaher Capital, who currently controls the scale of tens of billions of capital, and is also the investor behind sequoia China, CDH Investment, Gaohe Capital, Qingsong Fund and other investment institutions, and the huge investment territory also highlights Wang Jianguo's ambitions.

Wang Jianguo and the Three "Unicorns"

To understand the code of Success of Wang Jianguo's entrepreneurship, you need to start from his life experience, Wang Jianguo, from Suzhou, Jiangsu Province in 1960, Wang Jianguo, who graduated from the Jiangsu Provincial Commercial School at the age of 21, entered jiangsu provincial-level organs as a civil servant, participated in the reform of the rural economic system, and later went to the Binhai County Commercial Bureau. 10 years later, at the age of 31, Wang Jianguo was not satisfied with the work in front of him, took the initiative to put forward the idea of "going to the sea", went to Jiangsu Wujiaohua General Company, and after 7 years of promotion to general manager Wang Jianguo, after introducing home appliance wholesale and other businesses, began to get involved in the field of home appliance chain retail, and renamed the company "Five Star Electrical Appliances".

As the industry competition gradually entered a white-hot, in 2006 and 2009, Wang Jianguo sold all the shares of his five-star electrical appliances to the Us consumer electronics retailer Best Buy twice, which began his new entrepreneurial journey.

In 2009, he found several consulting companies to find the blue ocean field and arranged the management team to investigate the direction of entrepreneurship, and finally came to four conclusions: the first maternal and infant and child market - the potential demand of the infant and child products market is huge; the second sinking market - the potential business opportunities brought by the release of rural consumption potential; the third high-end rich market - consumption upgrade brings new demand for comfortable homes; and the fourth elderly market. In the context of that time, Wang Jianguo saw that the domestic large enterprises that had not yet been successful in these four fields were not successful, and then he was a leading enterprise in the maternal and infant market" "Child King", a sinking rural market "Huitongda", a high-end home market "Good Enjoyment Home", and three unicorn enterprises, truly interpreting the whole life from throwing away the iron rice bowl to going to the sea to do business.

Wang Jianguo's first listed company - Child Wang

Mother and baby retail leader "Child King"

In October 2021, Wang Jianguo harvested the first IPO in the entrepreneurial experience - the mother and baby retail leading enterprise "Child King" officially landed on the ChiNext board, since the listing of the "Child King" market value has been hovering at the bottom, did not trigger too much speculation in the capital market, as of January 14, 2022, the market value of child king is about 20.6 billion yuan.

Only on January 11, 2022, the "child king" was warmly sought after by the capital market, up 16.68%, mainly for two reasons, one of which is that according to iResearch's forecast, the current maternal and infant market is dominated by infant and child products and services, and by 2024, the size of the mainland maternal and infant market will exceed 7 trillion yuan, indicating that the entire market space is huge, and there will be no Red Sea competition. Second, it is inseparable from the new concept put forward by Wang Jianguo when he founded the "Child King", requiring a shift from operating commodities to operating users, from meeting demand to creative satisfaction, which makes the market believe that Wang Jianguo has forward-looking insight and management capabilities.

At the beginning of the establishment of "Child King", there was no good benchmarking enterprise in the field, so the company rearranged and combined the core elements of global retail enterprises, and created a "commodity + service + social" large store model, a childcare consultant service model, and a membership-based single-customer economic model in the retail industry, subverting the old resource-driven model of the traditional domestic retail industry.

At present, The Child King has two online and offline service platforms. Offline, it has opened nearly 500 stores with an average area of 2,500 square meters in more than 20 provinces and 3 municipalities directly under the central government in more than 20 provinces and municipalities directly under the central government. Online, the company has built a variety of shopping channels such as APP, community, and live broadcast to meet consumer needs.

The Child King expanded his path rapidly

Child King operating income to maintain rapid growth thanks to the continuous expansion of the scale of stores, as well as brand awareness and consumer reputation continues to improve the scale of customers continue to expand, from the following chart can be seen that the company's operating income from 1.56 billion to 8.36 billion in 2014-2020, the annual review growth rate reached 32%, although in recent years affected by the new crown epidemic, but the number of stores with strong profitability of a single store and the proportion of revenue continue to increase.

In the long run, Child King plans to build 300 digital stores in 22 provinces and cities across the country in the future, and it is expected that the number of company stores will reach 734 by the end of 2023, and brokerage institutions also predict that child King's operating income will reach nearly 12 billion yuan in 2022.

From the perspective of the company's main business composition, the revenue of maternal and infant product sales, maternal and infant care services, supplier services, advertising and platform services accounted for 88.4%, 2.66%, 6.21%, 0.85% and 0.99% respectively. Other businesses include investment promotion, software, etc. accounted for 0.9%. As can be seen in the following figure, the proportion of sales revenue of maternal and infant products is decreasing year by year, and the proportion of supplier service revenue is constantly increasing, indicating that Child King is optimizing the business structure and reducing risks at the operational level. At the same time, as a professional place for the sale of maternal and infant products, Child King has gradually developed more value-added service projects (baby haircuts, baby early education, etc.), and the new projects can not only increase the profit growth point, but also enhance the frequency of customer consumption and the length of staying in the store, improve customer loyalty and stickiness, and further increase the sales of related products.

In recent years, the gross profit margin of the company's main business has been maintained at about 30%, and the overall stability has risen, mainly due to the increase in the proportion of maternal and infant services and supplier service sales, because the gross profit margin of maternal and infant services and supplier services is much higher than the gross profit margin of maternal and infant products, which in turn drives the overall gross profit margin of the main business.

From the perspective of return on net assets, the company's return on net assets from 2018 to 2020 is above 20%, driving the continuous improvement of the company's return on net assets, mainly due to the improvement of net profit margin on sales and the optimization of capital and debt structure.

Child King's net profit attributable to the mother in 2014-2020 increased from -0.9 billion to 390 million, indicating that the company has been running steadily in recent years, although the net profit attributable to the mother in the first three quarters of 2021 was 237 million, down 8.54% year-on-year, but mainly affected by the new crown epidemic and the application of new leasing standards, from the perspective of institutional forecasts, the future child king will still maintain a positive growth trend.

The "Moat" of the Kid King

By the end of 2020, the number of offline stores in the baby-friendly room is close to 300, mainly in East China. Both companies use a direct model and have similar product structure types, so the gross profit margin level is relatively close. However, the net profit margin of The Child King is lower than that of the baby-friendly room as a whole, mainly because the regional distribution of the Child King store is more dispersed, and the continuous growth of the number of managers has reduced the company's profitability. However, the number of members of Child King has approached 50 million, accounting for 98% of the total sales revenue of maternal and infant products, and is far ahead in the domestic maternal and infant private domain traffic.

The competition barriers of the child king are also reflected in the aspect of parenting consultants, and there are currently nearly 6,000 consultants with national nursery qualifications in the country, effectively solving various parenting problems of members, which makes it difficult for other competitors to catch up in the short term.

Future developments and risks

At present, the industry competition pattern is relatively scattered, in addition to the child king, baby-friendly room and other a few leading enterprises, most of them are small and medium-sized chain stores or individual stores, according to CBME data, in 2019, the number of stores in the country below 5 mother and baby retail chains accounted for nearly half, the number of stores more than 100 accounted for only 4%, which is bound to cause "child king" in the business expansion around the country will encounter obstacles, in the short term, the industry's leading market share can not be rapidly improved, the follow-up use of cost reduction + It is difficult to raise prices to improve the company's performance.

Of course, you also need to pay attention to several risk points, first of all, the new crown epidemic continues to occur in the country, which will still cause a lot of impact on the offline business of the child king; secondly, the route taken by the overseas leader Akaja is also a large store operation + high-end positioning, when encountering the economic downturn cycle, it is easy to be overtaken by competitors who take the low-end route; finally, the child king and its sub-branches have been punished many times, and the reason for the punishment is mainly the sale of unqualified goods, which also reflects the loopholes in the operation and management process of the child king, for the upstream agents, Dealers and other management are not in place.

Wang Jianguo's first Hong Kong-listed company - Huitongda

Important layout of the sinking retail market

Huitongda is an important layout of Wang Jianguo in the sinking retail market, and has passed the hearing of the Hong Kong Stock Exchange and will become the first stock of e-commerce in the sinking market. The company is mainly a trading and service platform for corporate customers in the retail industry of the sinking market, and its main business model is to link the existing stock of small stores to the Huitongda platform, help small stores acquire customers in the front end, and help it optimize the supply chain in the back end.

According to the Frost & Sullivan report, the per capita disposable income of the mainland sinking market is expected to grow from 29,000 yuan in 2020 to 40,000 yuan in 2025, with a compound annual growth rate of 7.2%, which will be higher than the 6.3% of the first- and second-tier markets. The report also predicts that the size of the mainland retail market will grow to 25.8 trillion yuan in 2025, of which the sinking retail market will contribute 20.6 trillion yuan, which once again shows that Wang Jianguo's track has better room for development.

As of September 30, 2021, Huitongda has 57,074 active member retail stores, 13,653 active channel cooperation customers and 4,268 suppliers, forming a retail ecology covering 21 provinces and 20,000 townships and towns across the country and having 175,000 SKUs, benefiting more than 300 million farmers, and Huitongda has a high market share in the segment.

Store SaaS+ subscription is not reliable?

According to the prospectus, Huitongda's operating income in 2018, 2019 and 2020 was 29.8 billion yuan, 43.633 billion yuan and 49.629 billion yuan, respectively. From the perspective of net profit financial indicators, net losses were 276 million yuan, 305 million yuan and 280 million yuan, and adjusted profits were 124 million yuan, 250 million yuan and 322 million yuan, respectively.

By the end of 2020, the self-operated business is the company's main source of revenue, contributing 99.3% of the revenue, the commodity category has been expanded to cover consumer electronics, household appliances, agricultural production materials, transportation, home building materials and beverages and other six categories, in addition, the service business segment is also one of the revenue sources of Huitongda, accounting for 0.4% of the main revenue, of which the store SaaS+ subscription business that is highly expected currently accounts for only 0.2%.

Huitongda's gross profit margin in recent years is still declining year by year, from 3.4% in 2018 to 2.7% in 2020, and now it has further decreased to 2.6% in the first three quarters of 2021, mainly due to the decline in the gross profit margin of the company's trading business, the proportion of home appliances with high gross profit margins has gradually decreased, and the proportion of consumer electronics with low gross profit margins has gradually increased.

Shareholding structure and cooperative development

From the perspective of equity structure, Huitongda has carried out several rounds of financing since its inception, and the total investment has exceeded 5.8 billion yuan, including the support of Sino-US Green Fund, Shunwei Capital, Huaxing Capital, Yida Capital, Huaxia Insurance, Huatai Securities and other war investments, even so, the actual controller and largest shareholder of the company, Wang Jianguo, still holds 32.56% of the shares, Alibaba ranks as its second largest shareholder, with a shareholding ratio of 19.08%, including the central enterprise Rural Industry Investment Fund Co., Ltd. Holding 5.3%.

Of course, we should pay attention to the fact that Alibaba in addition to the identity of the second shareholder, or Huitongda customers and suppliers, although there are many related party transactions with Huitongda, but the two sides can achieve mutual benefit and win-win results, in the future the two sides will also carry out in-depth cooperation in the supply chain, sales channels, warehousing logistics, technical systems and other dimensions in the field of new retail, the imagination space is huge.

Around the enclosure movement of C-end users in the sinking market, Internet giants have long had a layout, before there is a Pinduoduo group entry, and then Ali and Jingdong join the melee. In order to avoid head-to-head confrontation, Huitongda chose to cut into the sinking track from the B-end user, although it is in the blue ocean, but there are still some problems, Huitongda in the self-operated business to carry half of the sky on the basis, due to the sinking market e-commerce standardization is insufficient, supply chain loss and other factors, profits are still hovering on the edge of loss, is the current urgent need to solve the problem.

At the level of operational risks, Huitongda has 8 own risks, 434 related risks, and 61 historical risks. Risks include lawsuits over disputes over sales contracts, disputes over shareholder qualifications, etc.

In addition, Huitongda's competitive barriers are not solid, in order to cope with the strong intervention of Internet giants, in order to maintain market share, offline sales costs are still a part of Huitongda that cannot be reduced; in addition, Huitongda and ordinary member stores do not have a strong monopoly, the threshold conditions are not high, and the ability to resist external competition risks is limited.

Wang Jianguo and other related enterprises

Good home

Haoxiangjia layout in the high-end consumption upgrade market, positioned as a comfortable smart home, through the platform, technology, data, empower industry service providers, provide integrated solutions for goods + services, and promote the deep integration of the Internet and the traditional comfortable home industry. In 2018, it was awarded the industry's first national unicorn enterprise.

Agra

Agra is a digital supply chain service platform that positions new channels. The supply chain services that originally relied on pure manual matching were online. For the upstream, Agra accurately collects information and provides order feedback and commodity demand feedback to brand factories to help them set production on demand. Since its inception, it has continued to maintain rapid growth, achieving sales revenue of more than 6 billion yuan in 2020 and a cumulative sales scale of more than 10 billion yuan.

The risks and dilemmas of Wang Jianguo's business empire

The above has explained the potential risk situation of the child Wang and Huitongda respectively, and for the risk situation of the actual controller Wang Jianguo, after inquiry, he served as the legal representative of 18 companies, served as 43 shareholders, and controlled as many as 1000+ enterprises, which posed a huge challenge to Wang Jianguo and the management of the enterprise, at present, Wang Jianguo's own risk is 1, the surrounding risk is as much as 1600, and the early warning reminder is also more than 400.

In addition, what needs more attention is that Wang Jianguo's investment territory is still expanding, and after the upstream and downstream of the industrial chain is laid out, it is inevitable that there will be problems such as internal related party transactions, business name sharing, and competition in the same industry.

【BT Finance Tips】This article is for reference only and does not constitute investment advice. Investors should not use this report as the sole reference factor in making investment decisions, nor should they believe that this report can replace their own judgment.