New Stock Preview | Metro Supply Chain: Maintaining survival by "rent collection," independence of supply chain business is questionable.

After half a year, Metro Supply Chain once again submitted an application to the Hong Kong Stock Exchange, with UBS Group and CMSC International as joint sponsors. The application for listing marks Metro Supply Chain's further determination to expand the capital market. The updated prospectus shows that Metro Supply Chain positions itself as a provider of CHINA FOODS fast-moving consumer goods supply chain solutions, with its main services focused on three areas: providing retail distribution solutions to retailers (including product sales and supply chain services to retailers); providing food service and distribution solutions to corporate and institutional clients, as well as welfare gift solutions. As of July 31, 2024, the company provided retail distribution solutions to 99 Metro stores and 342 Wumart supermarkets and 287 Wumart convenience stores owned by Wumart Group. Metro, which requires a membership card for entry, is a warehouse-style supermarket that is on par with Sam's Club and Costco. Wumart is a regional supermarket leader. As of 2021, Wumart's market share in the northern region of China was 35%, with a 56% market share in the Beijing region. With two well-known clients, Metro Supply Chain has an extraordinary position in the supply chain industry. According to Frost & Sullivan, based on 2023 revenue, Metro Supply Chain is the second largest provider of food fast-moving consumer goods supply chain solutions in China, with a market share of 0.2%. However, the company's financial condition shows fluctuations. Additionally, its dependence on Wumart may exacerbate financial concerns, becoming a major factor of investor concern. Revenue decreased for three consecutive years, profits fluctuated significantly. Despite being a leader in the fast-moving consumer goods supply chain solution sector, Metro Supply Chain's revenue has been declining. From 2021 to 2023, the company's revenue decreased annually, with a compound annual growth rate of -5.47%. At the same time, the company's profit also fluctuated significantly, with net profits for the years being approximately RMB 3.32 billion, -4.71 billion, and 2.53 billion, respectively, from 2021 to 2023, with a compound annual growth rate of -12.76%. The company's profit margins were relatively stable; however, its net profit margins fluctuated, remaining slim. For the first seven months of 2024, the company's revenue was 14.824 billion yuan; with a profit of -0.41 billion yuan, indicating a return to a loss-making situation. Along with unstable performance, other financial indicators at Metro Supply Chain are also worrying. From 2021 to July 31, 2024, the company's cash and cash equivalents decreased continuously to 5.4 billion yuan. Meanwhile, the company's short-term debt continuously increased to 162.3 billion yuan by July 31, 2024, indicating significant debt concerns. As the company's cash decreases and its debts grow, maintaining sufficient liquidity will be a major challenge for Metro Supply Chain. The company also noted in its risk disclosures that if it is unable to maintain sufficient cash and financing, it may not have enough cash flow to support its operations, activities, and capital expenditures.The RMB 9,907 billion, with a compound annual growth rate of 7.1%, is expected to continue to grow at a compound annual growth rate of 7.4% between 2023 and 2028. By 2028, the market size is expected to reach RMB 14,149.7 billion.In terms of competition, the fast-moving consumer goods supply chain industry of CHINA FOODS is highly decentralized. According to 2023 revenue, the market share of the top five food fast-moving consumer goods supply chain solution providers is 0.8%. In the same year, the market share of METRO's supply chain is 0.2%, making it the second largest food fast-moving consumer goods supply chain solution provider in China. In terms of revenue scale, the gap between the company and the industry leader is not very large. In short, METRO is backed by Wumart, possessing both "beauty" and "non-beauty". Currently, in the vast track of the trillion-dollar market, there is no absolute leader. With the further increase in industry concentration, the growth space of METRO's supply chain can be said to be vast. If the company can successfully pass the hearing of the Hong Kong Stock Exchange, it is expected to expand and improve its supply chain, incorporate more industry participants, strengthen its discourse power in the industry chain, and consolidate its market position. However, whether it is further market expansion domestically, or improving the operational independence of the enterprise, METRO's supply chain needs to enhance its profitability to smooth out operational fluctuations. Today, METRO's supply chain has reached a critical crossroads in its development, with continuous shrinking cash flow and increasing debt, urgently needing to go public to solve short-term funding needs and ensure long-term competitiveness.