20230403-招银国际-汇通达网络-09878.HK-Solid_recovery_and_margin_improvement_ahead_6页

Huitongda Network (9878 HK) Company Update Summary

Core Content and Key Highlights

Huitongda Network (HTD), listed on the Hong Kong Stock Exchange with ticker 9878 HK, is a company that operates in the Chinese e-commerce and service sectors. The report from CMB International Global Markets highlights the company's expected performance and valuation, despite challenges posed by macroeconomic conditions and e-commerce competition.

Main Points and Key Information

Performance Outlook

• Revenue Growth: The company is expected to show 18% YoY growth in FY23E and 16% YoY growth in FY24E, with a 14% YoY growth in FY25E.
• Earnings Growth: Adjusted net profit is projected to increase by 20% YoY in FY23E, 26% YoY in FY24E, and 22% YoY in FY25E.
• Earnings CAGR: HTD is expected to deliver a 24% CAGR in adjusted net profit for FY23-25E, outperforming the industry average of 13% to 20%.
• Margin Improvement: The company is expected to improve its gross margin, operating margin, and adjusted net margin over the forecast period.

Challenges and Adjustments

• Epidemic Impact: Due to the impact of the epidemic in 1Q23E and macroeconomic uncertainty, the company's revenue and earnings forecasts were trimmed by 4-7% for FY23-24E.
• Categories with Higher Margins: The recovery in categories like household appliances and homebuilding materials is slower than anticipated, affecting the overall margin growth.
• S&M Ratio: The Selling and Marketing ratio slightly increased after the reopening, which also influenced the earnings forecast.

Strategic Moves

• Acquisition of Hosjoy: HTD announced an acquisition agreement with Hosjoy, aiming to reduce potential competition and enhance cross-selling capabilities.
• Focus on High-Quality Growth: The company prioritizes high-quality growth and profitability, which is expected to drive long-term value creation.

Valuation and Target Price

• Target Price (TP): The new target price is set at HK$55, a +77.0% increase from the previous TP of HK$63.2.
• Valuation Methodology: The report uses a SOTP-based valuation and a DCF model for cross-checking. The SOTP valuation assigns a 0.27x FY23E P/S or 45x FY24E P/E.
• Discount to JD: HTD's valuation is 31% lower than JD.com, based on the SOTP method.

Financial Summary

• Revenue: FY22A revenue was RMB 80,355 million, with a 22.2% YoY growth.
• Adjusted Net Profit: FY22A adjusted net profit was RMB 379 million, with a 15.7% YoY growth.
• EBIT: Operating profit was RMB 663 million in FY22A, increasing to RMB 914 million in FY23E.
• Net Profit: Net profit was RMB 287 million in FY22A, rising to RMB 456 million in FY23E.

Cash Flow and Balance Sheet

• Operating Cash Flow: FY22A operating cash flow was RMB 686 million, projected to increase to RMB 1,789 million in FY24E.
• Investing Cash Flow: Investing cash flow was RMB -970 million in FY22A, with a trend of negative cash flow in FY23E and FY24E.
• Financing Cash Flow: Financing cash flow was RMB 1,848 million in FY22A, indicating strong equity raising.
• Balance Sheet: The company maintains a strong cash position, with RMB 9,531 million in cash at the end of FY25E.

Shareholding and Stock Performance

• Shareholding Structure: Key shareholders include Wang Jianguo (21.92%), Alibaba China (13.82%), and Xu Xiuxian (10.15%).
• Stock Performance: Over the past 12 months, the stock has underperformed, with a -14.5% return over 6 months and -19.8% over 3 months.
• Market Cap: As of the latest data, the market cap is HK$17,299 million.
• Share Price: The current price is HK$31.1, with a 52-week high of HK$64.7 and a low of HK$27.9.

Key Ratios

• Sales Mix: The commerce business dominates the sales mix at 98.9% in FY23E, while the service business is at 1.0%.
• Growth Rates: Revenue growth rates are expected to slow down, from 22.2% in FY22A to 18.1% in FY23E.
• Profitability: Adjusted net margin is expected to improve from 0.5% in FY22A to 0.6% in FY25E.
• Return Ratios: Return on Equity (ROE) and Return on Assets (ROA) are expected to increase, reflecting improved profitability.

Conclusion

Despite challenges from the epidemic and macroeconomic uncertainty, Huitongda Network is positioned for solid recovery and margin improvement in the coming years. The company's strategic acquisition and focus on high-quality growth support its long-term prospects. The target price of HK$55 suggests a 31% discount to JD.com, indicating that the valuation may be not overly demanding. The report maintains a BUY rating, highlighting the company's potential for above-industry growth and margin enhancement.