(Photo source: Visual China)

Blue Whale News, August 27 (Reporter Shao Yuting) On August 23, the Hong Kong Stock Exchange's official website showed that Jihong shares (002803.SZ), a listed company on the Shenzhen Stock Exchange's main board, submitted its second listing application to sprint for a Hong Kong listing and complete its A+H dual listing. CICC and CMB International served as its joint sponsors.

Jihong shares were listed on the Shenzhen Stock Exchange's main board in 2016, starting with paper packaging and serving well-known paper companies such as Qingfeng and Xinxiangyin. Today, the company has transformed into a cross-border e-commerce business, but its profitability remains to be seen. Over the years, the company has continuously attempted to "cross over" into popular industries, from metaverse to baijiu to ChatGPT, prompting the Shenzhen Stock Exchange to issue multiple letters of concern.

As of the close on August 27, Jihong shares were trading at 9.47 yuan per share, with a total market value of 3.645 billion yuan.

Transformation from paper packaging to cross-border e-commerce, soaring marketing expenses dragging down performance

Founded in 2003, Jihong shares started with paper packaging. After listing on the Shenzhen Stock Exchange's main board in 2016, the company's business growth slowed down, prompting it to seek transformation into the then-popular cross-border e-commerce sector.

Unlike other cross-border e-commerce platforms that primarily target the European and American markets, Jihong shares' cross-border e-commerce business primarily aims at the Asian region. To date, over 80% of its revenue in this business still comes from Asia (including Northeast Asia, Southeast Asia, and the Middle East).

Jihong shares has also benefited from its business transformation. In 2018, its internet business segment generated revenue of 1.209 billion yuan, an increase of 461.98%, surpassing its packaging business for the first time. Currently, nearly 60% of Jihong shares' revenue comes from cross-border social e-commerce, while the proportion of paper packaging business has gradually decreased to only 30% now.

According to China Insights Consultancy, in 2023, Jihong shares ranked second among China's B2C export e-commerce companies in terms of revenue generated from social media e-commerce business in Asia, with a market share of 2.3%.

The traditional cross-border e-commerce model is "people find goods," where an e-commerce platform is established overseas, and overseas users search for products. Jihong shares, however, operates on a "goods find people" model, where it has developed a Giikin system that utilizes data analytics technology to target users and deliver targeted advertisements on mainstream overseas social platforms, selling products ranging from home furnishings to electronics.

The company's merchandise primarily comes from Alibaba's wholesale marketplace "1688.com" and its six proprietary brands, all of which were launched within the last three years, with three of them being introduced in 2023.

To secure stable merchandise suppliers, the company launched a one-stop SaaS service platform called "Jimiao Cloud" in 2022, providing services such as advertising placement, cross-border logistics, and cross-border payments for SMEs. Currently, the company has not recorded any revenue from the SaaS services provided by "Jimiao Cloud." Jihong shares stated that it plans to start charging service fees for some services on "Jimiao Cloud" in the second half of 2024 and may adopt a subscription-based pricing model.

Although no revenue has been recorded from "Jimiao Cloud," the company's research and development expenses remain significant. From 2021 to 2023, the company recorded R&D expenses for its cross-border social e-commerce business of 42.8 million yuan, 43.7 million yuan, and 43.1 million yuan, respectively.

Furthermore, Jihong shares needs to continuously invest in advertising to sell its merchandise, resulting in growing sales expenses. From 2021 to 2023, the company's sales and marketing expenses were 1.451 billion yuan, 1.575 billion yuan, and 2.342 billion yuan, respectively.

Due to these soaring period expenses, Jihong shares has frequently struggled with increased revenue but stagnant profits since 2021.

Financial reports show that in 2021, Jihong shares achieved revenue of 5.178 billion yuan, an increase of 17.41% year-on-year, with a net profit attributable to shareholders of 227 million yuan, a year-on-year decrease of 59.32%. In 2022, the company achieved revenue of 5.376 billion yuan, with a slight increase in revenue but a further decline in net profit attributable to shareholders of 19.07% to 184 million yuan.

In 2023, the company's performance rebounded, recording revenue of 6.695 billion yuan and adjusted profit for the year of 359 million yuan. However, the latest half-year report revealed a significant decline in performance. In the first half of 2024, the company's revenue was 2.453 billion yuan, a year-on-year decrease of 21.97%, with a net profit after deducting non-recurring gains and losses of 63.1316 million yuan, a year-on-year decrease of 64.18%.

For this IPO, Jihong shares plans to use the raised funds for overseas market expansion, logistics and warehousing upgrades, AI enhancements, research and development of the "Jimiao Cloud" platform, continuous marketing efforts, and as working capital.

High dividends before IPO, with the controlling family cashing out nearly 1 billion yuan

After Jihong shares' transformation into cross-border e-commerce began to take shape in 2018, the company continuously attempted to "cross over" into various industries.

Over the years, through mergers and acquisitions, equity participations, and other means, Jihong shares has ventured into various hot concepts in the capital market, including blockchain, metaverse, masks, baijiu, and more. During this period, the company was frequently questioned by the Shenzhen Stock Exchange for "riding on hot trends."

In June 2021, Jihong shares planned to acquire Guizhou Diaotai Gong to enter the baijiu industry, prompting the Shenzhen Stock Exchange to issue a letter of concern, asking the company to clarify whether it was catering to hot trends to boost its share price. In 2022, Jihong shares announced its intention to participate in the establishment of an equity investment fund focused on the metaverse industry chain, again prompting a letter of concern from the Shenzhen Stock Exchange. Ultimately, these "crossover moves" were unsuccessful.

Last year, as ChatGPT gained popularity, Jihong shares also jumped on the bandwagon. On March 16, 2023, Jihong shares announced on the IR platform that its cross-border business had integrated with ChatGPT's API interface. Subsequently, over the following five trading days, Jihong shares' share price surged by more than 50%. On March 21, the Shenzhen Stock Exchange issued a letter of concern.

Amidst share price fluctuations, the company's actual controllers, directors, supervisors, and related shareholders frequently reduced their holdings to cash out. According to Wind data, since 2018, Jihong shares' actual controllers, directors, supervisors, and major shareholders have collectively reduced their holdings and cashed out nearly 2.5 billion yuan, with the controlling Zhuang family cashing out nearly 1 billion yuan.

As of June 2024, Jihong shares' controlling shareholder and actual controller was Zhuang Hao, holding 18.1% of the shares. Zhuang Zhenhai, Zhuang Shu, He Jingying, Zhang Heping, Lu Tashan, and Tibet Yongyue are considered as concerted parties, forming the largest single shareholder group, collectively holding approximately 32.1% of the shares. Among them, Zhuang Zhenhai is Zhuang Hao's father; Zhuang Shu is Zhuang Hao's younger brother; He Jingying is Zhuang Shu's wife; Zhang Heping is Zhuang Hao's husband; and Tibet Yongyue is owned by Zhuang Zhenhai with a 71.4% stake.

In the past two years, Jihong shares has conducted two significant dividend distributions consecutively. In 2022, when the company's net profit attributable to shareholders after deducting non-recurring gains and losses was 169 million yuan, it distributed a total dividend of 99.5216 million yuan. In 2023, with a net profit attributable to shareholders after deducting non-recurring gains and losses of 325 million yuan, the company plans to implement a cash dividend of 137 million yuan.