More than 60% of Metro Supply Chain's revenue comes from Wumart, with high debt-to-asset ratios maintained over the past three years and limited liquidity on hand.
Zhang Wenzhong, the founder of the Wumart system with a net worth of over ten billion, is preparing to make another attempt at an IPO (Initial Public Offering). Recently, Wumart's subsidiary, Metro Supply Chain Co., Ltd. (hereinafter referred to as "Metro Supply Chain"), submitted a listing application to the Main Board of the Hong Kong Stock Exchange, with UBS Group and China Merchants Securities International as joint sponsors. Metro Supply Chain is primarily engaged in providing fast-moving consumer goods supply chain solutions in China. The prospectus estimates that the company's market value at the time of listing will exceed ten billion Hong Kong dollars. After equity穿透, Zhang Wenzhong owns approximately 73.31% of the shares in Metro Supply Chain and is the actual controller, with other shareholders including the Abu Dhabi government, IDG Capital, Tencent Holdings, Lenovo Group, etc. In the history of China's retail business, Zhang Wenzhong is an important figure who cannot be avoided. In 1994, he founded Wumart Supermarket in Beijing. In 2003, Wumart Commercial went public in Hong Kong, becoming the "first private retail stock in Mainland China," and Zhang Wenzhong was once hailed as the "Father of Chinese Supermarkets" by the outside world. The turning point occurred in 2006. At the peak of Wumart Group's development, Zhang Wenzhong was taken away for investigation and was sentenced to 12 years in prison in 2009. Since then, the development of Wumart Group has stagnated, missing the golden period of retail transformation in the Internet era. Wumart Commercial's performance was weak, and the stock price was low, eventually leading to its privatization and delisting from the Hong Kong Stock Exchange in 2016. Zhang Wenzhong was released early from prison in 2013 due to a reduction in his sentence, and in 2018, the Supreme People's Court acquitted him. However, by this time, the Chinese retail market had undergone tremendous changes. Since then, Zhang Wenzhong has begun to expand through mergers and acquisitions. Between 2018 and 2020, Wumart Group acquired B&Q China, 21 stores in the North China region of the Lotte Group, some Neighbors' convenience stores that were facing capital chain ruptures, CR Vanguard's Beijing stores, and Metro China, among others. At the same time, Zhang Wenzhong's personal wealth has also been on the rise. In the "2024 Hurun Global Rich List," Zhang Wenzhong ranked 1274th on the list with a fortune of 20 billion yuan. Today, Zhang Wenzhong is still trying to expand the capital territory of the "Wumart system." In 2021, Zhang Wenzhong packaged Wumart Supermarket and Metro China into Wumart Technology and submitted an application to the Hong Kong Stock Exchange, but failed to pass the hearing. Now, after reorganization, Wumart Technology has been renamed "Metro Supply Chain" and is making another attempt at an IPO. In addition, the Multi-Point Smart Technology Co., Ltd. (hereinafter referred to as "Multi-Point Smart"), which is controlled by Zhang Wenzhong, submitted its listing application materials to the Hong Kong Stock Exchange for the third time in April this year, with the previous two applications ending due to the expiration of the prospectus. It can be seen that the two companies controlled by Zhang Wenzhong have made five attempts to enter the Hong Kong Stock Exchange in three years, reflecting his eagerness to enter the capital market. Looking at the financial reports, both Metro Supply Chain and Multi-Point Smart have been under increasing financial pressure over the past three years, with liquidity under pressure and debt-to-asset ratios always above 100%, operating in a state of negative net assets. "Looking at the financial reports, both Metro Supply Chain and Multi-Point Smart have relatively tight capital chains, and the financing through listing is very urgent. The low-cost fundraising method brought by listing can reduce their financial burden," an analyst told Caijing.
Metro's "Sale"
When it comes to Metro, many people may not be unfamiliar with it. This retail giant was established in 1964 and is the largest in Germany and the third-largest retail wholesale supermarket group in the world. It entered China in 1995 and opened its first store in Shanghai the following year. Almost at the same time, Walmart's first Sam's Club store was also established in Shenzhen. When it first entered China, Metro mainly focused on B-end business, providing food distribution, welfare gift distribution, and other services for enterprises, restaurants, five-star hotels, and other clients. However, as the B-end business continued to shrink, Metro China's business began to shift towards the C-end. However, the development of the C-end business was not smooth. On the one hand, the emergence of e-commerce led to a decline in the business of physical hypermarkets, and on the other hand, Metro failed to seize the golden period of rapid growth in China's consumer market. In stark contrast, Sam's Club has been advancing rapidly and has become the core engine of Walmart China's development. Under pressure, Metro China embarked on the path of "selling itself." In 2019, Wumart Group "defeated" peers such as Suning and Yonghui, and announced the acquisition of 80% of Metro China's shares at a price of 1.9 billion euros (approximately 14.9 billion yuan). After the acquisition, Wumart Group carried out a membership system transformation for Metro China. In 2021, Zhang Wenzhong packaged Wumart Supermarket and Metro China into Wumart Technology and planned to go public in Hong Kong, but failed to open the door of the Hong Kong Stock Exchange. In 2023, Wumart Technology transferred its retail business (including Wumart Supermarket and Metro China) to Wumart Group, completely transforming into a supply chain service company, which became Metro Supply Chain. The prospectus shows that Metro Supply Chain's business is mainly divided into three categories: providing food services, distribution solutions, and welfare gift solutions for enterprises and institutions; providing retailer distribution solutions for retailers; and commercial wholesale. The retailers mentioned here are mainly Wumart Group. As of the end of 2023, Metro Supply Chain provided retailer distribution solutions for 100 Metro stores, 366 Wumart supermarket stores, and 304 Wumart convenience stores of Wumart Group. Overall, Metro Supply Chain's revenue has declined over the past three years, but the gross margin has remained stable, and the adjusted net profit has been gradually improving. From 2021 to 2023, the company's revenue was 27.8 billion yuan, 27.1 billion yuan, and 24.9 billion yuan, respectively; the gross margin was 9.1%, 9.7%, and 10.7%, respectively; and the adjusted net profit was 108 million yuan, 412 million yuan, and 430 million yuan, respectively.
More than 60% of the revenue comes from Wumart.Looking at the revenue composition, the main income of Metro Supply Chain comes from the Wumart Group. In the past three years, the revenue contributed by the Wumart Group has accounted for more than 60%, representing 61.5%, 62.3%, and 62% of the total annual revenue respectively. However, the revenue from the second-largest customer accounts for less than 1%. The company's revenue in 2023 declined by 8% year-on-year, which is also related to the Wumart Group. Metro Supply Chain stated in its prospectus that the main reason is the reduction of about 15% in the number of Wumart Group stores, leading to a decrease in product sales to the Wumart Group; at the same time, the adoption of a membership system by the Wumart Group has affected purchases by non-member consumers; and there is a general decline in consumer demand. In other words, although backed by the Wumart Group, the growth of Metro Supply Chain also depends on the growth of the Wumart Group, unless the company develops more third-party retail customers. So, how is the development trend of the Wumart Group? The "2023 China Chain TOP100" released by the China Chain Store and Franchise Association shows that in 2023, the sales scale of the top 100 supermarket enterprises was 868 billion yuan, with a total of 23,800 stores, a year-on-year decrease of 7.3% and 16.2% respectively. Walmart (China) ranked first with a sales volume of 120.2 billion yuan, Yonghui and Kangcheng Investment (RT-Mart) ranked second and third with 85.5 billion yuan and 77.2 billion yuan respectively. The Wumart Group ranked sixth with a sales volume of 56.6 billion yuan, a year-on-year decrease of 7.2%. It is worth mentioning that among the top ten, apart from Walmart (China), the sales volume of the other domestic supermarkets all declined year-on-year, such as: Yonghui Supermarket, Kangcheng Investment, CR Vanguard, Hema (China), Lianhua Supermarket, Zhongbai Supermarket, etc. With the change of shopping channels, live e-commerce, fresh e-commerce, community group buying and other forms are becoming the choice of more and more people, and membership warehouse stores like Sam's and Costco have attracted a large number of consumers, which has made the situation of large supermarkets that were already not good even worse. "Online retail is accelerating its penetration, and offline supermarkets are facing a cold sales situation. The industry trend is such that it is difficult for the Wumart Group's revenue to be ideal." An analyst told "Finance and Economics". In addition to the challenges of revenue growth, the financial liquidity of Metro Supply Chain is also not optimistic. Although the company is profitable every year, it does not have much cash on hand. From 2021 to 2023, the cash and cash equivalents of Metro Supply Chain were 2.582 billion yuan, 1.864 billion yuan, and 527 million yuan, respectively, shrinking by 80% in two years. At the end of 2023, the short-term borrowings and long-term borrowings due within one year of Metro Supply Chain were 738 million yuan, and the long-term borrowings were 4.039 billion yuan, with a total debt of 30.812 billion yuan. The asset-liability ratio of Metro Supply Chain has always been higher than 100% in the past three years and has been increasing year by year. As of the end of 2021, 2022, and 2023, its asset-liability ratios were 102.96%, 110.1%, and 117.86%, respectively. In other words, Metro Supply Chain has been operating in a state of insolvency for many years. The company's current ratio also decreased from 0.93 at the end of 2021 to 0.66 at the end of 2023. Under the tight capital chain, the capital transactions between Metro Supply Chain and related parties have increased significantly. The cash flow statement shows that the loans provided by Metro Supply Chain to related parties increased from 486 million yuan in 2021 to 1.988 billion yuan in 2023; the loans obtained from related parties also increased from 479 million yuan in 2021 to 4.039 billion yuan in 2023. Another company, DuoDian Shuzi, which is controlled by Zhang Wen Zhong and is about to go public, is facing a more severe liquidity dilemma. As of the end of 2023, DuoDian Shuzi held cash and cash equivalents of 533 million yuan, which was halved from 1.135 billion yuan at the end of 2020. In terms of performance, DuoDian Shuzi has not been profitable since its establishment, with net losses of 1.825 billion yuan, 841 million yuan, and 655 million yuan from 2021 to 2023, respectively, and the asset-liability ratios were as high as 470%, 565%, and 591%, respectively.
Zhang Wen Zhong's Capital Map
Zhang Wen Zhong's life is full of drama. He created the Wumart Group with one hand, but also experienced twists and turns. He was born in 1962, graduated from Nankai University, and then went to Stanford University in the United States for postdoctoral research in systems engineering. In the early 1990s, Zhang Wen Zhong returned to China and founded a computer company, developing a set of MIS and POS systems for retail enterprises. However, most supermarkets did not accept this. Zhang Wen Zhong simply opened his own supermarket and used his own developed digital system. In 1994, he established the Wumart supermarket and quickly expanded through a chain operation model. In 2003, Wumart Business went public in Hong Kong, becoming the first private retail stock in mainland China. In 2006, Wumart stores approached 600, becoming the largest chain supermarket in Beijing. At this time, Wumart Business replaced Ningxia State-owned Assets as the controlling shareholder of Xinhua Department Store. Just as Zhang Wen Zhong's career was booming, a change came. During his imprisonment, the development of Wumart Business stagnated. In 2016, due to declining performance and continuous decline in stock prices, the company took the initiative to delist. After being released from prison, Zhang Wen Zhong, on the one hand, led the Wumart Group to start the offline expansion again, acquiring 70% of the equity of China Homebase, as well as some stores of CR Vanguard, Linjia, and Lotte; on the other hand, he took "business digitalization" as his new goal for starting a business again. In 2015, Zhang Wen Zhong and his nephew Zhang Feng co-founded the digital platform DuoDian DMALL (DuoDian Shuzi). DuoDian DMALL was originally derived from the cash register tool of Wumart Supermarket and is currently dedicated to providing digital SaaS solutions for the local retail industry, helping retailers manage the entire operation process. Zhang Wen Zhong is also actively exploring new things. In May of this year, he settled in Douyin to start live broadcasting, inviting business tycoons such as Yu Minhong and Lei Jun to talk about the second entrepreneurship, and behind it is Zhang Wen Zhong's ambition to come back and fight again. Now, Zhang Wen Zhong's capital map is expanding: in A-shares, Zhang Wen Zhong controls Xinhua Department Store, holds shares in Chongqing Department Store, and will participate in the reorganization of Better Life. In Hong Kong stocks, DuoDian Shuzi and Metro Supply Chain are still on the way to IPO. Xinhua Department Store is mainly concentrated in Ningxia and the northwest region. As of the end of 2023, Xinhua Department Store operated a total of 344 physical business stores, including 12 department stores and shopping centers, 243 supermarket stores, and 89 home appliance and communication stores. In 2023, the company's revenue and net profit attributable to the parent company were 6.065 billion yuan and 136 million yuan, respectively. In 2018, the mixed ownership reform of Chongqing Department Store, the "Southwest Retail Giant," was on the agenda. Wumart Group joined hands with Better Life, taking two years to successfully enter Chongqing Department Store's controlling shareholder, Chongqing Business Society Group, with 8.6 billion yuan. After years of operation, Wumart Group became the largest private shareholder of Chongqing Department Store, holding the same shares as Chongqing State-owned Assets, 24.89%. As of the end of 2023, Chongqing Department Store has opened 281 stores of various types, and its business outlets have been deployed in 35 districts and counties of Chongqing, as well as Sichuan, Hubei, and other places. In 2023, the company achieved a revenue of 18.985 billion yuan and a net profit attributable to the parent company of 1.315 billion yuan. In April 2024, *ST Better Life (Better Life) announced that the company would add two industrial investors and 11 financial investors to participate in the reorganization, including Zhang Wen Zhong's Wumart Group. *ST Better Life stated that Wumart's commercial chain and store management capabilities in the field of store management can be opened to the company, and the related party DuoDian DMALL will also be introduced to empower Better Life's digitalization. In addition, the consumer finance company that Chongqing Department Store and Wumart Group jointly hold, MaShang Consumer Finance, is also actively planning for an IPO. The company once challenged the "first consumer finance stock in A-shares" in 2020, but just before its IPO, it was named and notified by the China Banking and Insurance Regulatory Commission, and its IPO plan fell through. According to the annual report of Chongqing Department Store, in 2023, MaShang Consumer Finance achieved a business income of 15.795 billion yuan and a net profit of 1.982 billion yuan.Please provide the text you would like translated into English.
Comments