Boutique aims to earn 500 million yuan this year, Shenzhen Dama’s parent company focuses on cross-border business

Recently, Huakai Creative held its 2021 Annual Shareholders' Meeting. At the meeting, the "Proposal on the Proposed Change of Company Name and Securities Short Name" was passed. According to the proposal, the company name will be changed to "Huakai Yibai Technology Co., Ltd." and the securities short name will be changed from "Huakai Creative" to "Huakai Yibai".

Sellers who follow Huakai Creative should have realized that the word "Yibai" was taken from the Shenzhen cross-border e-commerce giant "Yibai Network" that it acquired. Using the name of a subsidiary as the name of a listed company, there must be something behind Huakai Creative's name change.

This is indeed the case. At the shareholders' meeting, Huakai Creative Chairman Zhou Xinhua said that in the future the company will focus its resources on the comprehensive development of cross-border export e-commerce business.

As we all know, the cross-border e-commerce industry has entered a "difficult period" since the second half of last year. In 2022, many sellers were forced to reduce their business scale or go bankrupt. In such an environment, Huakai Creative still shifted its business core to cross-border e-commerce, which shows that it has enough confidence and is very optimistic about the future development of cross-border e-commerce.

From the current perspective, Huakai Creative's gains in cross-border e-commerce business are gratifying. From July to December 2021 alone, Yibai Network created 1.953 billion yuan in revenue and achieved a net profit of 216 million yuan for the whole year. In addition, the first quarter performance forecast of 2022 released by Huakai Creative earlier showed that the company's net profit turned from loss to profit. The main reasons are: Yibai Network, a holding subsidiary, achieved operating income of approximately 930 million yuan, and is expected to achieve a net profit of approximately 45 million to 47 million yuan, contributing approximately 37 million to 40 million yuan in profits to the listed company.

The name change was approved with a high vote, and Huakai Creative successfully switched to the cross-border track

On May 18, Huakai Creative held its 2021 Annual Shareholders' Meeting with the theme of "Renewal and Growth". One of the renewals refers to the name change.

At the shareholders' meeting, shareholders reviewed and voted on the tenth proposal, namely, the proposal to change the company's name and securities abbreviation, and 152,955,298 shares, accounting for 100% of the total number of valid voting shares held by shareholders attending the meeting, were approved by a large majority. The company's name will be changed to "Huakai Yibai Technology Co., Ltd." and the securities abbreviation will be changed from "Huakai Creative" to "Huakai Yibai".

Huakai Creative was founded in 2009. It mainly provides comprehensive environmental art design services for large indoor spaces such as exhibition halls and exhibition halls. Its product forms are various cultural theme space display systems. On January 20, 2017, it was successfully listed on the Shenzhen Stock Exchange's Growth Enterprise Market, becoming the first listed company in the exhibition hall industry.

Looking back at Huakai Creative’s development history over the past decade, we can see that it is a company that is very good at seizing opportunities.

In 2010, Huakai Creative's performance grew by leaps and bounds, thanks to the favorable conditions brought by the "Shanghai World Expo". Its revenue exceeded 100 million yuan in just one year after its establishment .

In 2018 and 2019, Huakai Creative's main business performance declined year after year (revenue in 2018 was 448 million yuan, a year-on-year decline of 20.32%; revenue in 2019 was 412 million yuan, a year-on-year decline of 8.21% ). At this time, the cross-border e-commerce industry was growing year by year, showing a booming trend. In the context of the increasingly declining business, Huakai Creative entered the cross-border e-commerce industry through mergers and acquisitions in 2019, trying to seize this new trend and bring a second growth curve to the company.

As we all know, there are many listed companies that have adopted the same approach as Huakai Creative to layout the cross-border e-commerce industry, but many of them ended up in a mess. The focus of the problem is that cross-border e-commerce companies fail to achieve the performance promised to listed companies. For example, in the 872 million yuan performance bet between Tongtuo Technology and Huading Shares, Tongtuo Technology only achieved 710 million yuan, with a difference of 162 million yuan. In addition, there is Jiazhilian, which was sued for 1 billion yuan by the listed company Xunxing Shares due to the failure of the performance bet.

Huakai Creative’s acquisition of Yibai Network can be said to be a pleasant surprise.

From the perspective of performance betting, Yibai Network's net profit attributable to shareholders after deducting non-recurring items in 2019 was 175 million yuan, exceeding the promised amount by 34.2814 million yuan; the net profit attributable to shareholders after deducting non-recurring items in 2020 was 364 million yuan, exceeding the promised amount by 194 million yuan; the net profit attributable to shareholders after deducting non-recurring items in 2021 was 216 million yuan (excluding the accrued excess performance bonus), exceeding the promised amount by 11.7245 million yuan.

That is to say, in the five-year performance bet between the two parties, Yibai Network has exceeded its promised performance for three consecutive years.

In contrast, Huakai Creative's net profit attributable to shareholders of the listed company after deducting non-recurring items was 527,100 yuan in 2019, and its net profit attributable to shareholders of the listed company after deducting non-recurring items in 2020 was even negative 61.82 million yuan.

By comparing the two, it is easy to see that Yibai Network's e-commerce business is developing at an unstoppable pace, while Huakai Creative's cultural and creative business has shrunk severely.

Huakai Creative is obviously aware of its own problems. After successfully acquiring 90% of Yibai Network's equity in 2021, Huakai Creative actively adjusted and contracted its cultural and creative businesses, significantly streamlined related business personnel, and took the initiative to abandon projects with long payment cycles and large advance payments, implemented strategic transformation, and vigorously developed cross-border export e-commerce business. In 2021, the original exhibition hall division was disbanded. At present, Huakai Creative has basically stopped taking on new exhibition hall business, and all cultural and creative businesses and resources have been transferred to Shanghai, a highland of cultural and creative industries and talents.

Judging from Huakai Creative's 2021 financial report, cross-border e-commerce has become its main business. The financial report shows that Huakai Creative's total revenue in 2021 was 2.075 billion yuan, of which the cross-border export e-commerce business revenue was as high as 1.953 billion yuan (only the consolidated revenue of Yibai Network from July to December 2021), accounting for 94.12% of the total annual revenue. The revenue of the cultural and creative business segment was only 121 million yuan.

The name change was passed with a high vote, indicating that Huakai Creative has successfully completed its transformation, cross-border export e-commerce has become its core business, and its future development strategy will also focus on cross-border e-commerce.

The boutique business has achieved remarkable results and plans to generate 500 million yuan in revenue this year

When Huakai Creative was surveyed by five institutional units including fund companies, securities companies and sunshine private equity in early May, it introduced that in terms of revenue structure, its cross-border e-commerce revenue has accounted for more than 98% of its total revenue.

From the current perspective, the transformation to cross-border e-commerce has effectively improved Huakai Creative's ability to sustain development and resist risks, which is specifically reflected in the following two aspects:

1. Revenue increased significantly. Revenue in 2021 and the first quarter of 2022 increased 14 times and 26 times year-on-year respectively. The 2021 financial report shows that Huakai Creative's revenue in 2021 was 2.075 billion yuan, a year-on-year increase of 1435.08%. This year's first quarter report shows that Huakai Creative's operating income reached 935 million yuan, a year-on-year increase of 2619.13%, and its net profit was 34.72 million yuan, achieving a year-on-year turnaround.

2. The financial situation has improved significantly. In 2021, Huakai Creative's operating cash flow was 322 million yuan. As of the end of the first quarter of 2022, Huakai Creative had paid off all interest-bearing liabilities; the company had a total of 519 million yuan in cash and various financial products on its books, and its debt-to-asset ratio was only 21.91%.

It is no exaggeration to say that cross-border e-commerce has given Huakai Creative a second life. Now it has fully immersed itself in the cross-border e-commerce business. Huakai Creative estimates that this year's cross-border export e-commerce business segment will generate operating revenue of 5 to 6 billion yuan and a net profit of 200 to 250 million yuan.

As we all know, Yibai Network started out as a distributor and has earned a lot of profits in the general category over the years. However, such profit margins have been compressed in recent years. In addition, due to the large scale of general category SKUs, high unit promotion costs, and low conversion rates, Yibai Network is under increasing pressure. Therefore, after Huakai Creative fully focused on cross-border e-commerce business, it immediately started looking for new profit growth points.

Like Youkeshu and other popular brands, Huakai Creative chose the boutique model. In the second half of last year, Huakai Creative began to develop its boutique business, seizing the window of industry turmoil to form a new boutique team. From the perspective of category layout, Yibai Network's general categories are mainly concentrated in home gardening, industrial and commercial supplies, automobile and motorcycle accessories, health and beauty, etc. The boutique business is different. It prioritizes kitchen appliances, smart home, pet supplies and other categories. The average customer price of products in these fields is relatively high and the degree of competition is relatively low.

Huakai Creative is clearly confident about this new business. When responding to inquiries from the above-mentioned institutions, Huakai Creative said that it expects its boutique business to grow significantly during this year's Prime Day. The boutique business plans to achieve sales of 500 million yuan throughout the year and is expected to be profitable in the second half of the year.

Not only that, unlike many sellers, Huakai Creative is also much more optimistic about the external environment of cross-border e-commerce this year. It believes that the current external environment is gradually improving, and these changes will be conducive to the development of its cross-border e-commerce business and further boost the company's performance.

According to Huakai Creative's analysis, there are four main aspects of the favorable external environment:

1. The industry's destocking is coming to an end. At the beginning of last year, cross-border e-commerce was extremely popular, and sellers shipped a large number of goods. In addition , Amazon's account suspension wave broke out after April, which caused sellers to accumulate a large amount of inventory. This year, the industry's destocking is coming to an end. After experiencing the destocking cycle, the entire industry will come out of the trough, and the industry's gross profit margin will recover to a certain extent, which will help the performance to pick up.

2. Freight has dropped. Compared with last year's peak, freight has dropped to a certain extent this year. The first-leg and last-leg freight account for a large proportion of the net income of cross-border export e-commerce, so the reduction in freight will have a significant improvement on the company's performance .

3. RMB depreciation. RMB depreciation is good for export companies. It can not only improve the competitiveness of Chinese products in overseas markets, but also bring foreign exchange gains to companies, directly leading to improved performance. The RMB has depreciated significantly recently. Due to the divergence of monetary policies between China and the United States, there will still be certain depreciation pressure on the RMB in the future. Therefore, exchange rate fluctuations are also an important external factor.

4. High inflation in the United States. According to market forecasts, the inflation rate in the United States may exceed 8% again. High inflation will force offline channels to raise product prices, resulting in a decline in competitiveness, which will further stimulate consumers to turn to online shopping.

In addition, Huakai Creative also stated that the cancellation of tariffs by the United States symbolizes that the Sino-US trade war is easing, and the external environment of the export cross-border e-commerce industry has warmed up, which will be conducive to improving the competitiveness of its exports to the United States, and will be conducive to expanding sales in the United States, which will have a positive impact on future performance.

It is reported that Huakai Creative's sales in the United States accounted for about 20% in 2021. Despite the decline in online consumption in the United States in the first quarter of this year, its share still increased to about 25%.

With a monthly profit of 20 million yuan, Amazon FBA warehouse business has outstanding profits

Huakai Creative's acquisition of Yibai Network helped it get out of the trough and its performance rebounded. It can be said that it had picked up a treasure.

As mentioned above, Yibai Network has exceeded its performance commitments for three consecutive years. Yibai Network has a high chance of successfully completing its fourth year's performance. When accepting inquiries from institutional units, Huakai Creative once said that Yibai Network is very confident that it will complete this year's performance bet. Although the cross-border export e-commerce industry faces many challenges, Yibai Network can still maintain growth in overall revenue and profit scale by relying on its stable asset structure, financial strength, and continuously optimized information system and management and operation efficiency.

Yibai Network's confidence comes from its excellent performance. It is reported that Yibai Network 's revenue in 2020 reached 4.2 billion yuan, and its net profit increased significantly to 360 million yuan. In 2021, its revenue was about 4.7 billion yuan, its net profit was 216 million yuan, and its gross profit margin was close to 40%.

Although many sellers put their eggs in different baskets after Amazon banned a large number of accounts last year, such as exploring other new platforms or setting up new channels such as independent websites, these platforms and new channels are only auxiliary for many sellers, and the main source of revenue and profit still depends on Amazon. The same is true for Yibai Network.

Yibai Network's sales on Amazon have been relatively stable, and the performance of the Amazon segment has accounted for more than 90% of its profits. Earlier, Huakai Creative disclosed that Yibai Network was less affected by the account blocking wave, and only a very small number of accounts were notified of violations, and the income of such accounts accounted for less than one thousandth of the operating income in 2020. Therefore, while most sellers' performance from Amazon suffered a major blow last year, Yibai Network still achieved impressive results. In 2021, Yibai Network achieved sales revenue of 3.47 billion yuan through Amazon's cross-border export e-commerce business, an increase of 32.8% over 2020.

Not only that, Huakai Creative also said before that from the perspective of the industry development pattern, Amazon is still expanding its market share. Compared with other small and medium-sized platforms, Amazon's competitive advantage is more prominent, which can also bring a wave of performance growth to the company in the future.

On this stable and significantly efficient channel, Yibai Network's general product business has ample room to develop.

Although Yibai Network has initially planned to form a business combination of "general products + high-quality products + cross-border e-commerce comprehensive services", the general product business is still its most mature, large-scale and profitable business. It is reported that the general product business can bring 20 to 30 million yuan in profits to Yibai Network every month .

This profit source mainly consists of three parts: the first is the Amazon FBA warehouse business, which is the business with the most stable income and the most outstanding profit, with a monthly profit of about 20 million; the second is the small package direct mail business, which has a relatively stable profit of about 10 million per month ; the third is the overseas warehouse business, which is currently in a certain loss. However, the balance of overseas warehouse inventory has dropped from 300 million in June 2021 to about 50 million through increased efforts to clear warehouses. The remaining inventory scale is relatively healthy and will be slowly digested. Starting from the second quarter of 2022, this part of the factors affecting performance will be basically eliminated.

It is worth noting that Huakai Creative had previously stated to the above-mentioned institutions that came to investigate that the performance of its general product business in the second quarter of this year will still see significant growth compared with the first quarter, and is expected to grow by more than 30%.

Yibai Network is well aware of the difficulties and pain points of the general product business. Over the years, it has integrated multi-category, multi-platform and multi-channel businesses through its independently developed e-commerce ecosystem "Yibai Cloud" intelligent platform.

Adhere to the "double blue ocean" product development strategy to push up gross profit margin

Yibai Network has been able to get to where it is today with excellent results, and finally even single-handedly made its parent company significantly reduce its original business and switch to the cross-border e-commerce track. The reason behind this is its three major advantages in product selection, system, and inventory management.

In terms of main categories, Yibai Network sells products mainly including auto and motorcycle accessories, industrial and commercial supplies, home gardening, health and beauty, and outdoor sports, which obviously avoids the fierce market competition and the red ocean of 3C electronic products and clothing. In terms of category development strategy, it has obvious differentiation from other peers.

It is understood that Yibai Network adopts the "double blue ocean strategy" in product development. First, it strategically avoids categories in the red ocean market, such as clothing and consumer electronics, and continues to deepen its presence in blue ocean categories such as home gardening, health and beauty, automobile and motorcycle accessories, industrial and commercial supplies, etc. It has established certain first-mover advantages and scale advantages, and formed differentiated competition with other cross-border export e-commerce companies that mainly operate clothing and consumer electronics.

In addition to the above four categories, for other categories of products, Yibai Network also conducts in-depth research on market demand and consumer behavior, adopts blue ocean tactics for differentiated development, and focuses its product development direction on relatively unpopular segments with stable market demand.

This type of product has the characteristics of long life cycle and slow replacement. There is a large market demand in the niche field, and the degree of market competition is lower than that of 3C electronic products and clothing. The product prices are relatively low, and consumers are less sensitive to price levels. Therefore, there is a large room for price adjustment, which is conducive to maintaining a relatively high profit level.

This is why Yibai Network has always been known as the "King of Gross Profit". In 2020, its gross profit margin was as high as 61.33%, the highest in the industry. In 2021, its gross profit margin was 39.34%. Although it has dropped by nearly 22% compared with last year, it is still worthy of the title of "King of Gross Profit" among sellers whose gross profit margins are generally between 10% and 20%.

Let's take a look at one of Yibai Network's main categories, automobile and motorcycle accessories. Last year, the gross profit margin of this category was 40.25%, which was nearly 8 percentage points lower than the health and beauty category with the highest gross profit margin (48.23%), but it contributed 278 million yuan in revenue (combined financial statements from July to December).

From the sellers I have contacted, it is true that there are relatively few sellers who sell auto and motorcycle accessories, and even fewer who put them in the main business category, especially motorcycles. Many people think that the market space for such products is very narrow, but this is not the case. It’s just that the main market for such products is not in Europe and the United States, which sellers are familiar with, but in Africa.

Data from CCCME's "Analysis of Imports and Exports of China's Motorcycle Industry in 2020" shows that in 2020, China's exports of motorcycle parts reached US$550 million, a year-on-year increase of 42.5%, with varying degrees of growth to all continents, of which exports to Asia accounted for 44.8% of the total parts exports, and exports to Africa accounted for 31.3%.

At present, there are not many Chinese sellers of auto parts, but this market is not small and is developing rapidly. According to statistics from eMarketer, a well-known North American research company , the online sales growth rate of auto parts categories reached 14% in 2021, and the total transaction volume of the online market reached more than 60 billion US dollars, an increase of nearly 50% from 40 billion US dollars in 2018.

In summary, Huakai Creative changed its name and fully focused on the cross-border e-commerce track. It was forced by the continuous decline in the performance of its original main business, but more importantly, it saw the development potential of the cross-border e-commerce industry, and it was also the excellent performance of Yibai Network that gave it enough confidence. In the future, cross-border e-commerce will have another cross-border e-commerce company named "Huakai Yibai".

Huakai Creative

Yibai Network

Huakai Yibai