FIRST SHANGHAI: First to give HUITONGDA NET (09878) a "buy" rating with a target price of HKD 23.38.

First Shanghai released a research report stating that it has covered Huitongda Net (09878) for the first time, with a target price of HK$23.38 and a buy rating. Under the rural revitalization policy, AI empowerment, and external expansion-driven, the company's operating cash flow continues to flow positively, with profit indicators hitting a new high in the first half of the year. In addition to the full circulation of domestic shares, a HK$500 million H-share repurchase and dividend plan are helping the company return to the Hong Kong stock market, and it is recommended to pay attention to its high-quality and high-speed growth potential. The bank predicts that the group's revenue in 2025-2027 will be 58.3/62.5/67.6 billion yuan, with net profit attributable to the parent company of 3.43/4.46/5.79 billion yuan. First Shanghai's main points are as follows: - Alibaba's strategic investment, founder's focus returns. - Huitongda was established in 2010 and has now developed into a leading small B e-commerce platform in China's sinking market, providing a one-stop AI+SaaS solution for small town shops to meet the shopping needs of local customers. The company's founder is Wang Jianguo, who led the team from the well-known household appliance chain Five Star Appliances, incubating companies focused on the maternal and child market Kidswant Children Products, smart home company Haixiang Jia, and Huitongda focusing on the sinking market. The company's ownership structure is diverse, with Alibaba acquiring a 16.28% stake in 2018 through strategic investment. In 2024, the management's focus will return, and Huitongda's strategic position within the group will steadily improve, gradually implementing strategic upgrades and business structure optimizations, with the potential to replicate Kidswant Children Products' commercial growth path. - Riding the wave of policies, internal and external expansion drive growth. - Huitongda focuses on the trillion-dollar sinking market, leveraging urbanization trends and consumption upgrading, coupled with policy dividends such as national subsidies and rural revitalization, relying on the "flywheel effect" of trading and service businesses as well as AI+ applications to lead industry transformation. In the main business segment, the company strengthens its supply chain advantages, improves its omni-channel operational capabilities centered around small town member shops, and optimizes product structure to accurately match sinking consumer demands. In the digital field, the company's business transformation into an AI+SaaS platform service provider saw related revenue surpassing 65 million yuan in the first half of the year, and subsequently forged a strategic partnership with Alibaba Cloud for continuous optimization of the "Qiancheng AI" solution. In addition, the company enhances its business through external expansion and acquisitions, planning to acquire a 25% stake in Jin Tong Ling Technology Group for about 1.4 yuan per share, totaling about 1 billion yuan, to enhance industry layout and mobilize existing funds. With the implementation of strategic upgrades and business structure optimizations, Huitongda is expected to enter a new stage of high-quality and high-speed growth. - The turning point in performance has arrived, a combination of moves to help return to the Hong Kong stock market. - Huitongda covers retail ecosystems in 21 provinces and municipalities, serving 251,000 small town shops and reaching 300 million rural population; with a revenue CAGR of 12.5% from 2018 to 2024. In 2024, the company's strategy shifted from scale-oriented to profit and cash flow-oriented, divesting low-profit, low-value businesses, and the transformation effects in H1 2025 are evident: gross margin 4.6%, net margin 1.0%, net profit margin 0.6%, all reaching historical highs; operating cash flow continues to flow positively, forming a virtuous circle of "cash flow driving business optimization, business optimization feeding back cash flow", and it is expected to enter a period of harvest in quality and efficiency upgrades from 2025 onwards, with revenue and profits expected to grow rapidly. On the capital front, the company submitted an application for the full circulation of 350 million domestic shares in June, with an expected total of 530 million H shares (over 94% of the total shares), significantly increasing the market value; at the same time, it announced plans to repurchase H shares in the open market up to a maximum of 500 million yuan, and plans to distribute dividends as soon as possible in 2025 in accordance with the "Three-Year Shareholder Dividend Return Plan." Positive about the combination of "full circulation + repurchase" driving the dividend plan, helping the company re-enter the Hong Kong stock market and injecting dual motivations for long-term value enhancement.