The fundamental momentum for a company's stock price to rise comes from rising performance.
"We raised our revenue forecast for 2022 to 2023 by 4%, 12%, and increased our earnings per share forecast by 1% and 11% to reflect Huitongda Network (9878. HK) flexible business model and strong 2021 results. China Renaissance Capital said in a research report that it will continue to use the price-to-earnings ratio to value the stock and maintain a target value of 0.3 times the price-to-sales ratio, taking the forecast 2023 as the base year, and can obtain a new target price of HK$63.00 (previously: HK$55.00).
How strong will Huitongda's performance in 2021 really be? According to the financial report data, the company achieved operating income of 65.76 billion yuan in 2021, an increase of 32.5% year-on-year; gross profit increased by 38.9% year-on-year to 1.87 billion yuan; and adjusted net profit attributable to the mother increased by 66.4% year-on-year to 330 million yuan.
Strong "hematopoietic capacity" brings good cash flow to the company. In 2021, Huitongda's net cash from operating activities was RMB815 million, an increase of 72.6% over the previous year, and as of the end of December 2021, the Company had cash and cash equivalents of RMB2,966.9 million.
Is this kind of performance growth sustainable? Where is the company's incremental space?
Number of active clubs increased by more than 90% year-on-year
Since its establishment 12 years ago, Huitongda has always taken townships and rural areas as the focus of layout.
According to incomplete statistics, there are nearly two million small shops of all kinds at the town level in China, and nearly ten million small shops at the village level. 80% of farmers' daily consumption is achieved through these small shops. These rural grassroots commercial organizations have been operating for a long time, have a natural social attribute with farmers, and are welcomed and trusted by farmers. They operate quite flexibly, understand the farmer very well, are familiar with the farmer, and believe in the farmer.
These individual dots are like a pearl, and the value alone is not necessarily high, but if these pearls are strung together and become a necklace, then the value is high. Huitongda's cause is: arduous market, great mission.
In 2015, Huitongda took the lead in launching a membership system to integrate local husband and wife retail stores, and provide stable one-stop supply chain services and marketing training services for member stores.
In view of the operational pain points of township mom-and-pop stores, Huitongda provides one-stop empowerment of "transaction + service", bringing all-round services such as supply chain support, digital empowerment (smart store SaaS tools), online and offline marketing support for township stores, and comprehensively improving the business capabilities of township mom-and-pop stores, so that they can better serve rural C-end consumers.
According to the financial report data, as of the end of December 2021, the number of registered member stores had 169,500, an increase of 20.6% compared with 140,500 in the previous year. Among them, the number of active member stores was 62,200, an increase of 90.1% compared with 32,700 in the previous year. This means that the company has begun to increase its store activity on the basis of continuously opening up new stores.
In order to connect the full-link customers of the industry, in 2017, Huitongda launched the store SaaS+ business to help member stores further improve management efficiency and help them build online business.
At present, Huitongda's one-stop SaaS+ service solution based on retail stores is based on eight scenarios of store operation: one key to purchase, one key to open an online store, one key to open a live broadcast, one key to do drainage, one key to do distribution, one key to manage members, one key to manage stores, one key to receive and pay. Independent research and development has a set of technical products and applications such as "Super Boss", "Huixiang Purchase", "Huihui Making Money", "Huihaoguan", "Super Manager" and so on.
As of the end of December 2021, the total number of SaaS+ subscribers in the company was 102,000, an increase of 64.4% compared to 62,000 in the previous year. Among them, the number of paid SaaS+ users was 17,900, an increase of 5.964 times compared with 2,571 in the previous year.
China Renaissance Capital believes that the "transaction + service" service model can strengthen customer stickiness and effectively increase participation, and looking forward to 2022, although the continued impact of COVID-19 and weak consumer pressure remain unresolved, it still believes that this business model will continue to drive the company's long-term growth.
According to the National Bureau of Statistics, in February 2021, the country's rural retail sales increased by 5% year-on-year, while urban areas increased by 4% year-on-year. As Huitongda's main business is concentrated in lower-tier markets, Huitongda may enjoy more growth benefits than other e-commerce platforms that mainly cover first-tier cities.
Inventory turnover days decreased from 20 to 14 days
In order to meet the needs of the majority of township mom-and-pop shops, Huitongda's business model has undergone many iterations and is currently unique.
From a SaaS perspective, it is similar to Shopify in the United States. Shopify provides a package of solutions for retail enterprises, Huitongda provides a package of solutions for rural retail enterprises; Shopify does a relatively large scale, relying on fees and subscription-based advertising, and Huitongda also provides a supply chain, to a certain extent, Huitongda is heavier and deeper than Shopify.
From a supply chain perspective, it is similar to JD.com. Jingdong is its own procurement, and then sold to C-end consumers; Huitongda is first sold to small b merchants, and then sold to C-end consumers, although the gross profit is low, but Huitongda costs are much lower, logistics and distribution costs are very small, in the long run, Huitongda's profitability is not bad.
From the perspective of reverse customization, it is similar to Pinduoduo. On the basis of having its own supply chain, Huitongda is exploring feedback to factories according to the needs of township mom-and-pop shops, so as to achieve customization. Taking the 418 activity held in 2021 as an example, the company launched all member stores to reverse "group factory goods", on the one hand, to give the member store "factory goods direct batch" preferential purchase price, on the other hand, to help manufacturers accurately obtain order demand, quickly turnover products. During the warm-up period of the event alone, a brand of 1.5-horse air conditioner alone was directly "wholesaled" from the manufacturer to more than 70,000 pieces shipped to township stores around the country.
Different from the pure product sales platform, Huitongda extends the link to the industrial belt while expanding the township husband and wife stores, forming a unique "flywheel effect" driven by "transaction + service". That is, on the one hand, Huitongda uses brand owners to expand the sinking market, and at the same time, brand owners will also give more support to the company, so that the company can provide more and more competitive high-quality goods for the member store, thereby increasing the scale of procurement on the platform; on the other hand, the rapid growth of the trading business has also precipitated a group of potential customers with a certain trust foundation and cooperative relationship for the company's service business, forming a relationship of mutual promotion and mutual gain.
The unique business model brings a strong sales scale to the company. In 2021, the operating income of the trading business segment of Huitongda platform was 65.22 billion yuan, an increase of 32.3% year-on-year.
The consumer Internet has entered the stock era, and brand manufacturers have urgent "sinking" needs, but the sinking market is wide and scattered, and brands and manufacturers are "sinking" and are trapped. Therefore, Huitongda's retail network in the sinking channel is an important incremental opportunity for brands and manufacturers. At the same time, the consumption big data and traffic of downstream channel terminals can be fed back to upstream manufacturers to achieve efficient supply and demand matching, reduce production and circulation costs, and promote reverse customization.
Do deep "SaaS+ supply chain service"
In the past year, Huitongda has continued to deepen the landing of SaaS+ business strategy, and the product side has further clarified the three core functions of SaaS+ products: "help selling", "buying" and "helping management", and strengthened the platform data analysis function, hierarchical and hierarchical management of products and customers, which not only realizes the rapid expansion of incremental subscribers, but also effectively improves the retention rate of existing users.
In 2022, the company proposed to increase investment in IT infrastructure, accelerate digital construction, improve the platform's big data analysis capabilities and trading system execution efficiency, optimize SaaS product functions and risk control systems, thereby improving the operational efficiency of customers at all ends of the link and reducing operating costs.
China Renaissance Capital believes that under the guidance of management, in the next three years, by increasing IT infrastructure investment and upgrading solutions provided by merchants, the conversion rate of Huitongda's paying users will increase from the current 15% to 30%.
"We believe that in China, it will be difficult for pure SaaS companies, especially for SMEs, to make a profit because SMEs have limited ability to pay. Therefore, there needs to be a '+' behind SaaS, which can make + transactions, supply chain, finance, training, marketing, etc., to serve and empower target customers, in order to go through. It is not just a digitalization, but also a transcendence of digitalization. Peng Zhiqiang, chairman of Shengjing Network, believes that first, in China, we must do SaaS+; second, in terms of fees, we must have more patience. You can't charge a lot of money to the target customer at the beginning, because he can't afford it, so he needs to fight for profits through more value-added services.
Taking Huitongda as an example, the upstream collection of supply chain products, or the incubation and investment of innovative products, the income space will be very large. Therefore, when investing in China, Peng Zhiqiang is more optimistic about the logic of SaaS+ than the pure SaaS logic typically copied from the United States.
For the supply chain infrastructure, in 2021, Huitongda will actively develop an industry customization system and launch an exclusive industry channel. At the same time, it provides warehousing and logistics solutions including 500+ leased warehouses and 10,000+ social cooperation vehicles to realize "direct delivery by manufacturers + three-stage logistics + warehouse self-pick-up", which is applied to differentiated sinking market trading scenarios and provides stable and efficient commodity trading solutions for member retail stores.
For the planning of 2022, under the general requirements of the goal of "maintaining growth and improving quality", the company proposes to accelerate the construction of the warehouse allocation system, continue to upgrade the digital infrastructure of the warehousing and logistics system, integrate the social resources of warehousing and logistics, establish a cloud warehouse cloud distribution system, build a unified national warehousing and logistics system solution, and provide customers with standardized, professional and efficient logistics and distribution experience.
In optimizing the structure of transaction categories and deepening the cooperation between upstream brand owners, the company's operational efficiency has been significantly improved, and the number of inventory turnover days has been reduced from 20 days in 2020 to 14 days in 2021.
"The follow-up Huitongda can expand product categories, expand service categories, and extend the supply chain vertically, and profit release has a multiplicative effect." Peng Zhiqiang said that supporting huitongda to take the model and logic of the xiaomi ecological chain, the future can get more product agents, and more importantly, the ability to cultivate and incubate new products.
This article is for informational purposes only and does not constitute investment advice.
![Collect 50,000 husband and wife shops, Ali and Xiaomi cast a "sinking king"[fig]](data:image/gif;base64,R0lGODlhAQABAIAAAP///wAAACwAAAAAAQABAAACAkQBADs=)