Is now the opportunity to buy DMALL (02586)?

It has been a month since the listing, and the share price of DMALL (02586) has dropped by nearly seventy percent. So, is now a good opportunity to buy? This is a multiple-choice question that this largest digital retail service provider in China and Asia has left to the market. From the perspective of stock price, as of the close on January 14th, DMALL's valuation was 5.3 billion Hong Kong dollars. Currently, this valuation is lower than DMALL's valuation in the A round, meaning that its share price is lower than the cost price of A round financing shareholders, and DMALL had already reached the C+ round of financing before IPO. From the shareholder structure, its shareholders include Deluxe Corporation, IDG Capital, Industrial Bank, Tencent, National Social Fund, Shenzhen Capital Group, ranking second to sixth respectively, and notable institutions like Lenovo Capital and others are also important shareholders. This raises a question - are major shareholders willing to let investors from the A round to the C round suffer losses for so long? Looking at the performance, from 2021 to 2023, DMALL's revenue was 848 million yuan, 1.328 billion yuan, and 1.585 billion yuan respectively, with the first half of 2024 reaching 939 million yuan, a year-on-year growth of 22.9%. According to DMALL's expectations, they will achieve full profitability in 2025. For the capital market, turning losses into profits is a positive signal, an important indicator of significant improvement in the operation of platform technology companies. For example, after achieving profitability, companies like Amazon.com, Inc.(AMZN.US) and Facebook (FB.US) have become industry-leading giants; and companies like Didi and Meituan, after becoming profitable, the size of profits is a snowballing process. In the past five trading days, DMALL has had four days of net capital inflows, indicating that funds are collecting chips. In terms of price, DMALL's daily turnover has dropped from the range of tens of millions to around 3 million, and the price hovers in the 5.5-6 Hong Kong dollar range, possibly confirming the bottom. Possible inclusion in the Hong Kong Stock Connect The Hong Kong Stock Connect has become an important pillar of liquidity in the Hong Kong stock market. In 2024, the total turnover of the Hong Kong Stock Connect was 11.23 trillion Hong Kong dollars, accounting for approximately 34.64% of the total market turnover, reaching a new historical high, becoming the "mainstay" of the Hong Kong stock market. From the market value of DMALL in December 2024, its daily average market value has exceeded 6.1 billion yuan, reaching the threshold of the Hong Kong Stock Connect. By this standard, it may be included in the Hong Kong Stock Connect in March 2025, which will bring more liquidity to DMALL. The Hong Kong Stock Connect brings more domestic capital, and with over 90% of DMALL's business coming from China, domestic investors are more likely to be familiar with and possibly become investors in DMALL in the secondary market. Currently, the market only sees various financial information of DMALL in the prospectus, but from the perspective of familiar suppliers, mainland investors, and the management of DMALL, the prospectus does not accurately reflect the true financial details of DMALL. For example, by the end of 2024, Liu Guihai, a partner of DMALL, explained that the company's operating business is profitable, and the net cash flow from operations has turned positive. Specifically, although the net profit is negative, it is mainly due to the fair value changes resulting from the share swap with shareholders before the listing, and one-time expenses incurred during the listing period. Excluding these two points, the operating business is profitable; the net cash flow from operations has indeed turned positive, with more than 50 million yuan outflow in the first half of the year mainly due to the double salary and year-end bonuses paid in the first half of 2024. Liu Guihai bluntly stated, "If following the accounting standards system, DMALL's profitability is expected to be reflected in the financial reports of 2025." A platform that is already profitable and one that is losing money have completely different valuations. The profitability of a platform company confirms the feasibility of its business model and the sustainability of future profits, and profits as a SaaS company are more stable. In fact, unlike the "hidden champions" of high-tech new enterprises in the conventional sense, DMALL is the "hidden champion" behind many superstores and retail companies. By providing SaaS systems and value-added services, DMALL, as a one-stop full-channel digital retail solution service provider, helps retail enterprises improve efficiency, optimize user experience, and realize integrated online and offline operations. Data shows that by the end of 2023, DMALL had provided digital services to over 400 leading retail companies worldwide, with DMALL's OS system running in at least over 10,000 stores globally. Regarding the development prospects of DMALL, IDG Capital believes that the company will create a new smart retail ecosystem, creating more value for consumers, retailers, brand manufacturers, service providers, etc., and leading the Chinese retail industry into the digital age. The National Social Fund also stated that DMALL is a specific manifestation of "industrial internet" in the field of chain retailing, in line with the two major trends of consumption upgrading and industrial digitalization and intelligence. From the towering tree of technology A core strength of SaaS companies lies in the competitiveness of their system platforms and the customer base they serve. Zhang Feng, co-founder and CEO of DMALL, stated that the Dmall OS system has been iterated through over a hundred versions, constantly refined on the field of Wumei, and has strong versatility that can be replicated in other superstores. Today, the Dmall OS digital system of DMALL can intelligently select and display products based on different customer groups and business districts, achieving a personalized display strategy of "a thousand stores with a thousand faces, tailored strategies for each store". This personalized selection and display method not only enhances the shopping experience for customers but also increases sales. Taking Metro China as an example, it launched the Dmall OS system in January 2020, and as of June 30, 2021, the Dmall OS system reduced Metro China's inventory days by 50 days, decreased out-of-stock rates by 65%, and shortened online order picking time by 46 minutes.And help Metro China increase its online sales share from 1.4% in 2019 to 6.5% in 2021.Dmall Chongqing Department Store went online with the Dmall OS system in June 2020. As of June 30, 2021, the Dmall OS system reduced Chongqing Department Store's inventory days by 25 days, decreased the out-of-stock rate by 41%, shortened the online order picking time by 28 minutes, and helped Chongqing Department Store increase its online sales share from 0.5% in 2019 to 3.1% in 2021. Chongqing Department Store has cooperated with Shanghai New World, Meituan, and JD.com, Inc. Sponsored ADR Class A, but eventually settled on Dmall. Xie Jie, deputy general manager of the supermarket business unit, analyzed the differences: Meituan is a sales platform that does not teach businesses how to integrate online and offline digital operations, nor bring about changes in thinking to operations. "The digitization process is online companies moving down, offline companies moving up, and Dmall understands how to break through the bottleneck in this process and passes on the methods to traditional retail companies." Results are the ultimate test. From Metro China, Chongqing Department Store, to Wuhan Zhongbai, 7-ELEVEN, and manufacturing companies like Xinwei Foods, the Dmall OS system has been tested across various formats such as supermarkets, member stores, convenience stores DTC, discount stores, and manufacturing companies, solidifying industry best practices. Learning and catching up, localization and internationalization, traditional and technology constantly update and iterate, encapsulate the past 20 years of China's retail industry. Over the past 20 years, various social e-commerce, short video e-commerce, and live e-commerce have emerged, surpassing the United States in 2013 to become the world's largest online retail market; offline retail markets also continue to innovate, with new models such as store-warehouse integration, community group buying, and new formats like member stores, discount stores, and DTC flourishing. As a vast and diverse retail experimentation ground, China features various formats, regional differences, and consumer groups. Whether in high-end shopping centers in first-tier cities or traditional supermarkets in third and fourth-tier cities; in developed coastal areas or remote inland areas; serving Han Chinese consumers or consumers with different religious beliefs in ethnic minority settlements, companies like Tencent, Alibaba, and Dmall can practice their teams, technology, products, and concepts in this laboratory. In 2019, Mary Meeker, known as the "Internet Queen" in Silicon Valley, released the "Internet Trends" report, using the terms "creators" and "leaders" to describe new retail, stating that it is rapidly becoming the infrastructure of China's retail industry and exporting globally. It was in this year that Dmall's internationalization process began. Going overseas Li Ka-shing was the first Hong Kong businessman to feel the combat power of Dmall. Hong Kong was the first stop on the internationalization journey of Dmall. In 2020, Dmall established a strategic partnership with Hong Kong's retail giant Dairy Farm International Holdings Ltd. ("DFI"), which owns retail brands like Wellcome, Mannings, 7-Eleven, and has a wide user base in Hong Kong and Southeast Asia. Rooted in the Dmall OS system, the Dmall DMALL collaboration with DFI introduced the retail membership platform yuu in July 2020, covering brands like Wellcome, Mannings, 7-Eleven, among others owned by DFI. The integration model of yuu gradually changed the consumption habits of Hong Kong citizens, who have long relied on cash and physical cards for payment and PC e-commerce websites, driving the overall digital transformation of the retail industry in Hong Kong. Thanks to this hit, in just a year, the membership of yuu has reached 3.5 million, approaching the 5 million members of the 16-year-old Reward from Li Jia Cheng, achieving a turnaround. In this process, from physical to digital, from payment to reward, and from reward to shopping Wuxi Online Offline Communication Information Technology Co., Ltd. The collaboration with COS storage has not only succeeded in the Hong Kong market but also expanded to Singapore in 2021. Dmall has become a partner with COS storage, a well-known company in Singapore with a wide network of stores but relatively lower digitization levels. Dmall provided a comprehensive, personalized digital solution, including online stores, member management, data analysis, etc. These measures have helped COS storage stand out in the competitive market and achieve rapid growth. Even in economically underdeveloped areas, Dmall excels. In Cambodia, Dmall introduced advanced supply chain management systems for local businesses, monitoring inventory and sales data in real-time, achieving precise procurement and replenishment. After applying the Dmall OS system, a local chain supermarket saw a 30% increase in inventory turnover, savings on warehousing costs, and a significant improvement in customer shopping experience. In the Philippines, Dmall provided a digital system for the largest retail enterprise, SM Group, which holds around 40% market share in the Philippines, contributing to larger technology service fees for Dmall by 2025. Not only in the above countries, but also in Malaysia, Indonesia, Japan, and Brunei, Dmall has initiated international cooperation to varying degrees. As Dmall continues to expand its international market share, international business is becoming a new engine for Dmall's development.The flag business has planted its flag in the hearts of many countries in Southeast Asia, driving the overall digital transformation of the retail industry in these countries.Why can Dmall have such strong combat effectiveness in Southeast Asia? There are three reasons: A. Cost. Compared to traditional software vendors in Europe and America, Dmall's prices are more competitive, which is reflected in labor costs; B. Software adaptability. Compared to cross-industry general software, Dmall as an industry SaaS focusing on retail has stronger adaptability. Dmall can cover the entire retail enterprise operation chain with a single product, including all core business transaction scenarios; C. In terms of interests, European and American SaaS companies mainly charge subscription service fees, which may be a heavy burden for some small and medium enterprises; Dmall charges commissions based on the transaction volume of retail enterprises, rather than just fixed subscription fees, aligning with the interests of retail enterprises, growing together, and truly generating income through customers. More importantly, relying on the complex business environment with different development levels in the Chinese market, Dmall has established a complete end-to-end business SaaS solution. Starting from Southeast Asia, Dmall is sailing towards the real sea. In Europe, Dmall also partnered with METRO Europe to provide digital solutions, helping METRO Europe achieve digital transformation. For example, in Poland, the supply chain management in the market is relatively traditional, Dmall improved METRO's inventory turnover and distribution efficiency by introducing advanced supply chain management systems. After 4 years of hard work, Dmall's digital systems, including intelligent checkout, member marketing, automatic replenishment, and logistics modules, have been implemented in international retail enterprises, showing significant growth in their overseas business. According to the prospectus and related reports, the revenue contribution from overseas business increased from 2025.6 million yuan in 2021 to 123 million yuan in 2023, and the revenue reached 75.04 million yuan in the first half of 2024, with the revenue contribution from overseas business increasing from 2.4% in 2021 to 8% in the first half of 2024. This growth has become Dmall's second growth curve. Behind the expansion overseas is the characteristics of developed market retail enterprises with large scale and high gross profit margins. The IT budget of European and American retail enterprises can account for up to 5% of GMV, and Walmart Inc. and METRO's IT budget is around 2%. What kind of valuation should be given to Dmall? On October 28th, Dmall OS was successfully launched on Panda Mart, and the store system and warehouse system of Panda Mart switched overnight. Dmall not only collaborates with Panda Mart but also explores more cooperation opportunities with other clients. On a global level, according to information revealed by Dmall, breakthroughs have been made in overseas markets such as Japan and Thailand, and will soon be reported in the news. Liu Guihai mentioned, "Overseas business, relying solely on the OS system, has generated significant revenue, combined with new AI business, there is still a huge potential for additional revenue." Financially, taking R&D expenses as an example, Dmall OS system has reached a high degree of maturity, and the best practice provided by benchmark enterprises has substantially reduced the cost of personalized development. The proportion of Dmall's R&D expenses to revenue has decreased from 69% in 2021 to 21% in the first half of this year. In terms of market share, Dmall still maintains a leading position. According to Frost & Sullivan's data, based on revenue, the company holds a 13.3% market share in China's retail digital solution service providers, and a 10.9% market share in the Asian market, both of which lead. It is projected that from 2024 to 2028, the market size of the Chinese retail cloud solution industry will grow at a compound annual growth rate of 26.9%, reaching 2.8 trillion yuan by 2028; during the same period, the market size of the Asian retail cloud market will grow at a compound annual growth rate of 22.4%, reaching 3.9 trillion yuan by 2028. To digitize a retail enterprise, one must first understand the purchasing habits of brand consumers. Dmall, unlike many e-commerce platforms, has its own physical retail genes, which will determine the uniqueness of the digital transformation solutions provided by Dmall. One customer includes over 400 global clients such as Panda Mart, Yonghui, 7-Eleven, Lawson, Dennis Group, METRO, SM, and others. Moreover, Dmall has achieved victories in the competition with NEC, Siemens, SAP, Oracle, and stands as a profitable SaaS enterprise on the fast lane of growth. Is a valuation of just 5.3 billion Hong Kong dollars sufficient for Dmall? This is a new proposition that Dmall presents to the market.