Southeast Asia's independent website sales revenue exceeded 5 billion, and net profit fell by nearly 60%

Revenue exceeded 5 billion, and net profit fell by nearly 60%

Recently, Jihong Co., Ltd. released its 2021 financial report and the first quarter performance report of 2022. Data shows that in 2021, Jihong Co., Ltd.'s revenue was about 5.178 billion yuan, a year-on-year increase of 17.4%, and its net profit was about 227 million yuan, a year-on-year decrease of 59.32% . Among them, the scale of cross-border e-commerce business orders increased by more than 40% over the same period last year, with revenue of 2.83 billion yuan, a year-on-year increase of 11%, but net profit decreased by 53% year-on-year to 172 million yuan .

According to its financial report, the main reasons for the decline in profits of cross-border e-commerce business include the following aspects:

1.   The continued epidemic has led to a significant reduction in international logistics capacity, a decline in overseas logistics service capabilities, reduced delivery time, lengthened logistics cycles and a significant increase in costs.

2.   As industry competition intensifies, the number of companies entering the cross-border e-commerce industry continues to increase, scrambling for industry resources. In addition, disorderly and low-price competition further increases costs, causing profits to drop significantly.

3.   The impact of the epidemic has weakened consumer purchasing power. The company has increased the intensity and scale of its promotional activities, and the average order value of its products has dropped significantly.

4.   The increase in advertising expenses affected profits by approximately RMB 36 million.

Profits for the whole year of 2021 fell sharply, and Jihong Co., Ltd.'s revenue and profits in the first quarter of 2022 are not optimistic.

Data shows that in the first quarter of 2022, Jihong Co., Ltd.'s revenue was approximately 1.203 billion yuan, an increase of 2.08% year-on-year, and its net profit was approximately 41.87 million yuan, a decrease of 53.56% year-on-year. This was mainly due to the long-term impact of the epidemic. The company's cross-border e-commerce business advertising fees, logistics fees and other expenses increased, resulting in lower profits; the price of raw materials for the packaging business increased, and the gross profit margin declined; the revenue scale and profits of the precision marketing advertising business decreased during the same period.

It can be seen that affected by the overall industry environment, Jihong Co., Ltd.'s revenue has slowed down and its profits have decreased significantly. This trend is similar to the recent financial performance of many other major retailers.

Expanding into Southeast Asia, with the largest market share in social e-commerce

It is understood that Jihong's main business is divided into two modules: one is the To C-end precision marketing cross-border e-commerce business, and the other is the packaging service business that provides full-case marketing design for major customers. Among them, the company's cross-border e-commerce business profit in 2021 fell by about 194 million, a decrease of 53%.

Compared with other domestic third-party cross-border e-commerce platforms and independent site sellers, Jihong Co., Ltd.'s "independent site" business model is relatively unique. It adopts the single-page e-commerce model (COD) to conduct cross-border e-commerce business. The biggest feature of this model is cash on delivery.

Regarding marketing methods, the company mainly conducts online B2C sales by placing single-page advertisements on foreign social platforms such as YouTube, Instagram , and TikTok , selling domestically produced Chinese products with high cost-effectiveness and characteristics, ranging from shoes and clothing to home furnishings and electronic products, covering more than 10 categories. Its main markets are Southeast Asia and the Middle East (it has overseas warehouses in major countries in Southeast Asia and the Middle East), and it has also begun to enter the North American market in the past two years.

Although the company has always mainly adopted the "independent station" sales model, it has gradually begun to sell products on the Amazon platform since last year.

According to its financial report information, Jihong Co., Ltd. has currently become a leading enterprise in the cross-border e-commerce independent station model in Southeast Asia, with the largest market share in the social e-commerce market in the region . It has also formed industry competitive advantages that leading enterprises have in many aspects such as business scale and marketing planning.

Compared with regions such as Europe and the United States where e-commerce models are more mature, Southeast Asia is still a blue ocean market in the field of cross-border e-commerce: it has a large population, low e-commerce penetration rate, and huge development potential; at the same time, although there are regional giants such as Shopee and Lazada in the Southeast Asian market, their overall market share has not reached a near-monopoly position like Amazon and Walmart in the US market. Therefore, independent sites and social e-commerce also have a lot of room for survival.

Although the overall market environment is favorable for Jihong Shares to develop "independent stations" and social e-commerce businesses, it also faces some competitive threats. In April this year, TikTok Shop launched cross-border e-commerce business in Thailand, Vietnam, Malaysia, and the Philippines. Although it entered the market late, TikTok, which has huge traffic, directly entered the social e-commerce market. For Jihong Shares, TikTok Shop is indeed a powerful "spoiler".

However, in addition to directly conducting cross-border e-commerce business, Jihong Holdings has also invested a lot of money to launch a cross-border e-commerce SaaS service platform. Using the precise marketing data and operation management system that the company has accumulated in the early stage , it provides a full-link one-stop cross-border e-commerce solution for sellers who want to get involved in the cross-border e-commerce industry.

As more and more domestic sellers begin to try independent sites, the market for cross-border e-commerce SaaS service platforms will become larger and larger. In addition, industry data shows that in the past two years, cross-border e-commerce SaaS has been favored by capital, with a total financing amount of more than 600 million yuan in 2021. Since the beginning of 2022, there has been continuous financing news.

Whether it was the initial entry from the packaging industry into the cross-border e-commerce field, or the subsequent launch of the cross-border e-commerce SaaS service platform, Jihong shares has been constantly expanding its business boundaries and looking for new growth points. At the same time, in order to cope with the recent decline in profits, it announced the launch of foreign exchange hedging business.

In response to exchange rate fluctuations, Jihong shares launched foreign exchange hedging business

On the day when Jihong Co., Ltd. announced its 2021 annual report, it also issued the "Announcement of Xiamen Jihong Co., Ltd. on the Implementation of Foreign Exchange Hedging Business" .

The announcement stated that with the continuous development of the company's business, the scale of foreign exchange receipts and payments has continued to grow, and the volatility of the foreign exchange market has increased. In order to actively respond to the risks brought about by fluctuations in foreign exchange rates, Jihong Co., Ltd. and its subsidiaries plan to carry out foreign exchange hedging business with banks and other financial institutions. From April 24, 2022, they will select an opportunity to carry out foreign exchange hedging business within 12 months, with a scale not exceeding RMB 300 million or its equivalent in foreign currency.

Jihong Co., Ltd. stated that carrying out foreign exchange hedging business will help reduce the impact of exchange rate fluctuations on the company's profits, reduce exchange losses and reduce financial expenses.

Foreign exchange hedging is the use of foreign exchange futures trading to ensure that the value of foreign currency assets or liabilities is not affected or is less affected by losses caused by exchange rate fluctuations.

The losses caused by exchange rate fluctuations to Jihong Co., Ltd. can be seen from its financial report: Jihong Co., Ltd.'s first quarter 2022 financial report showed that its financial expenses increased by 406.32% compared with the same period last year, mainly due to the net increase in interest expenses in the first quarter and the increase in exchange losses caused by exchange rate fluctuations .

Since the second half of last year, the US dollar exchange rate has been falling, and sellers' profits have also been affected. The losses caused by exchange rate fluctuations can also be seen from the financial reports released by many major sellers recently. For example, in 2021, Giant Star Technology suffered a foreign exchange loss of 53.97 million, Anker Innovations suffered a foreign exchange loss of 30.49 million, and Yongyu Home Furnishing suffered a foreign exchange loss of nearly 10 million.

Although the U.S. dollar exchange rate has generally been on an upward trend since late April, rising to above 6.6 at one point, the exchange rate has fluctuated greatly and is very unstable. From this perspective, engaging in foreign exchange hedging business is also a safe choice.

In fact, it is not just Jihong Shares. Judging from the overall recent industry dynamics, many big sellers or platforms have begun to adjust their businesses. When the industry and market change, they need to adjust their business direction in a timely manner and turn from passive to active in order to achieve healthy development.

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