Acquisition terminated! The sale of the remaining equity of Shenzhen Damai failed, and the store data was further disclosed

Not long ago, the news that Shenzhen's popular online retailer Yibai Network would be wholly acquired by its parent company was hotly discussed in the cross-border circle. However, on June 24, its parent company Huakai Yibai suddenly announced that it would terminate the acquisition of the remaining 10% equity of Yibai Network.

On June 14, Huakai Yibai received a letter of concern from the Shenzhen Stock Exchange due to its plan to acquire the remaining 10% of Yibai Network's shares. On June 21, Huakai Yibai responded to the questions raised in the letter of concern, and more information such as the number of stores on Yibai Network's platforms, the proportion of receivables from third-party stores, and the revenue in the first half of this year were disclosed.

The sale of the remaining 10% stake of Yibai Network failed, and third-party stores may be the key

Previously, when Huakai Creative changed its name to "Huakai Yibai", some people said that there was something behind this move, and speculated that it would have other moves later. Sure enough, on June 13, not long after the name change was announced, Huakai Yibai issued an announcement stating that it planned to acquire the remaining 10% of Yibai Network's shares. However, after just 11 days, this plan came to an abrupt end.

On June 24, Huakai Yibai stated in the "Announcement on the Termination of the Acquisition of Minority Shareholders' Interests in Controlling Subsidiaries and Related Transactions" that based on the company's current actual situation and after friendly negotiations with Mang Liduo and Chaoran Mailun, the company decided to terminate the acquisition of the 10% equity of Yibai Network held by Mang Liduo and Chaoran Mailun. The "Equity Transfer Agreement" signed by the company with Mang Liduo and Chaoran Mailun on June 13, 2022 has not yet come into effect as it has not been reviewed by the shareholders' meeting of the listed company.

As we all know, third-party stores have always been the focus of the acquisition of Huakai Yibai and Yibai Network. Although Huakai Yibai issued an announcement in early June that it would introduce new store management regulations, after the implementation of the new regulations, Yibai Network is not allowed to operate third-party online stores and gradually complete the cleanup of third-party online stores. However, in the letter of concern received by Huakai Yibai on June 14, the Shenzhen Stock Exchange still focused on third-party stores.

As of the end of 2021, Yibai Network operated 535 third-party online stores, accounting for 15.82% of the total number of stores in 2021; achieved operating income of 576.1015 million yuan, accounting for 12.12% of the main business income in 2021, and achieved a net profit of approximately 25.2693 million yuan, accounting for 11.71% of the net profit attributable to the parent company's owners after deducting non-recurring gains and losses in 2021 (excluding excess performance rewards). (The above statistics have excluded online stores that have been rectified or closed by June 21 under the name of Yibai Network or its subsidiaries)

At the end of 2019, the end of 2020, and the end of 2021, the proportion of third-party nominal online store revenue operated by Yibai Network was 3.67%, 0%, and 12.19%, respectively.

In the announcement of the reply to the letter of concern, Huakai Yibai stated that in 2021, Yibai Network still opened and operated some third-party online stores in the form of information authorization. The nominal entities of the relevant online stores had not been changed to Yibai Network as of the disclosure date of the "Announcement on the Progress of the Implementation of the Commitments of the Relevant Parties" on June 2, 2022, and the corresponding operating income accounted for 12.12% of the main business income in 2021. Yibai Network is actively promoting the rectification of the newly added third-party online stores in 2021, and plans to complete the rectification of the remaining third-party online stores within 2022. For some online stores with smaller operating scales, the rectification method is to stop operations and close the stores.

At the same time, Huakai Yibai stated that Hu Fanjin and Zhuang Junchao further made a commitment on "Completion of the rectification of third-party online stores in 2022". If there are still third-party online stores that have not been changed to Yibai Network by the end of 2022, the income/net profit generated by the corresponding online stores will not be included in the assessment of the promised performance in 2022 and 2023 corresponding to the acquisition of 10% equity.

In addition, Huakai Yibai emphasized in its announcement in response to the Shenzhen Stock Exchange's inquiry letter on the 2021 annual report that as of the end of 2021, the company's online store funds totaling RMB 3.6111 million were temporarily frozen due to specific circumstances that the platform determined may have violated the platform's rules (such as product information suspected of infringement, goods on sale violating platform restrictions, order defect rates exceeding specific standards, etc.), but there was no situation where the company was sealed by a third-party e-commerce platform for violating the aforementioned commitment, namely operating some online stores in the form of information authorization.

The total number of stores exceeds 2,000, and more than 10,000 new products are developed every month

In the announcement of the reply to the Shenzhen Stock Exchange's letter of concern, Huakai Yibai mentioned that in 2021, the combined revenue of Yibai Network from the five major third-party e-commerce platforms of Amazon, eBay, AliExpress, Cdiscount, and Wish accounted for more than 90% of its main business revenue. It also disclosed the actual opening of Yibai Network online stores on the above platforms:

Amazon: In 2021, there were 684 online stores operating on Amazon , corresponding to 669 entities, of which 654 entities operated one online store, and 15 entities applied to the platform to operate two online stores with different names in North America, Europe or Japan.

eBay: In 2021, there were 109 online stores operating on eBay , corresponding to 109 entities. There was no limit on the number of online stores that a single entity could operate.

AliExpress: In 2021, there were 382 online stores operating on AliExpress , corresponding to 74 entities, and the number of online stores operated by a single entity did not exceed 6.

Wish : In 2021, there were 469 online stores operating on Wish , corresponding to 426 entities, of which 416 entities operated one online store; 10 entities owned more than one Wish online store, mainly because they applied to the Wish platform in the early stages of their operations and have continued to operate to this day, and have been confirmed by the Wish platform that they do not violate relevant online store registration and operation rules.

Cdiscount (French e-commerce platform): In 2021, there were 363 online stores operating on Cdiscount , corresponding to 363 entities.

Yibai Network has a total of 2,007 stores on the above five platforms.

We know that Yibai Network is a pan-category e-commerce company. In the announcement of its reply to the Shenzhen Stock Exchange's letter of concern, Zhonghua Kai Yibai also mentioned that Yibai Network implements a multi-category development business strategy. The scale of SKUs developed and sold currently has exceeded 420,000, covering 8 major categories, more than 20 first-level categories and more than 120 second-level sub-categories.

The advantage of pan-category operation is that in emergencies, there will not be a sudden drop in sales of a single category of products that will affect continued operations. At the same time, it can respond to demand quickly and develop new products in a timely manner. Huakai Yibai said that at present, Yibai Network develops more than 12,000 new products per month on average . At the same time , Yibai Network divides each product category into multiple subcategories, and has formed a product special team with personnel with experience in subdivided product development, procurement and sales to develop products suitable for e-commerce channels and meet specific market needs, providing consumers with more detailed and professional product information and shopping experience, and forming a certain experience barrier in product development, supply chain management and differentiated marketing strategies.

Home gardening, health and beauty, auto and motorcycle accessories, and industrial and commercial products are the four major categories operated by Yibai Network. Last year, Yibai Network also reaped great rewards from these categories, with combined revenue accounting for 65.93% of total revenue. On this basis, Yibai Network has also increased its resource investment in categories such as 3C electronic products, outdoor sports, and craft collections, and has set up product special teams for categories with relatively small initial investments, such as film and television photography, maternal and child products, and watches and jewelry.

It is expected to achieve a net profit of 120 million yuan in the first half of this year and 260 million yuan for the whole year

Previously, Huakai Yibai said that it was transforming into a boutique business. Now the boutique business is still in the investment period. In 2021, the boutique business generated a loss of about 18 million yuan, which had a great impact on the decline in current profits . However, Huakai Yibai said that the boutique business has gradually narrowed its losses and is expected to turn losses into profits in the second half of the year, and the negative impact on the performance in 2022 will be reduced. At the same time, it emphasized that the company is optimistic about the future development space and potential of the boutique business, and Yibai Network has the potential and space for sustained growth.

In the announcement of Huakai Yibai's reply to the Shenzhen Stock Exchange's letter of concern, it was mentioned that from January to May 2022, according to the unaudited Yibai Network accounting data, Yibai Network achieved operating income of approximately RMB 1.592 billion and net profit of approximately RMB 91.0427 million. Since 2022, Yibai Network's operating performance has been on an upward trend month by month. Assuming that the net profit achieved in June is the same as that in May, the net profit in the first half of 2022 is expected to be approximately RMB 118.419 million, accounting for 45.57% of the estimated net profit of RMB 259.861 million for the whole year of 2022. The second half of the year is the traditional peak season for cross-border export e-commerce, resulting in the first half of the year's performance usually accounting for less than 50% of the full year.

In 2019 and 2020, the net profit of Yibai Network in the first half of the year accounted for 44.32% and 47.87% of the annual net profit, respectively, with an average of 46.10%. Huakai Yibai said that by comparison, the proportion of net profit expected to be achieved in the first half of 2022 to the annual net profit is equivalent to that in 2019 and 2020, and Yibai Network's operating performance has been on an upward trend since 2022. Therefore, it is expected that Yibai Network is likely to achieve an estimated net profit of 259.861024 million yuan in 2022.

In addition, Huakai Yibai also forecasted its revenue and net profit for many years to come, with revenue expected to be approximately 6.2 billion yuan and net profit of 300 million yuan in 2023.

Judging from the data, the prospects seem bright, but Huakai Yibai also clearly pointed out that Yibai Network operates multiple Amazon online stores through multiple subsidiaries based on its multi-category development business strategy, which is somewhat different from the reasonable business reasons for a seller to open multiple accounts listed in the Amazon platform rules. If in the future the Amazon platform determines that Yibai Network does not have a reasonable business reason to operate multiple Amazon accounts, violates the store registration rules and closes the store, resulting in Yibai Network being unable to continue operating on the Amazon platform, then Yibai Network may face the risk of a decline in operating income and profit scale of more than 50% (in 2021, Yibai Network's revenue from Amazon accounted for 72.92% of its main business income), which will have a significant adverse impact on its overall operating performance.