Can METRO's supply chain break into the Hong Kong Stock Exchange again and reaffirm the dream of listing Zhang Wenzhong, the "father of Chinese supermarkets"?

Image source: Visual China

Blue Whale News, July 2 (Reporter Wang Jianwen) After undergoing business restructuring and changing its name, METRO Supply Chain Co., Ltd. (hereinafter referred to as "METRO Supply Chain") has once again fought on the Hong Kong Stock Exchange. On June 28, METRO Supply Chain submitted its prospectus, with UBS Group and China Merchants Securities International as the joint sponsors.

METRO Supply Chain, formerly known as Wumart Technology, submitted its application to the Hong Kong Stock Exchange in 2021, but failed to be listed. Since then, Wumart has divested its retail business and changed its name to METRO Supply Chain to re-sprint to the capital market. However, after the reorganization, METRO's supply chain still faces problems such as low gross profit and high dependence on related parties.

After the business restructuring, it was submitted to the Hong Kong Stock Exchange for the second time

The controlling shareholder of METRO Supply Chain is Zhang Wenzhong, who single-handedly founded Wumart Group.

As a pioneer in the domestic retail industry, Zhang Wenzhong's experience can be described as ups and downs. In the early 90s, Zhang Wenzhong returned to China after completing his postdoctoral research in systems engineering at Stanford University, and developed a set of MIS system and POS system for retail enterprises.

In order to promote this system, in 1994, Zhang Wenzhong opened the first Wumart supermarket in Beijing's Haidian District. Since then, Wumart supermarket offline stores have expanded rapidly, and in 2003, Wumart Commercial Co., Ltd., a subsidiary of Wumart Group, was listed on the Hong Kong Stock Exchange, which is also the first private retail enterprise in China to be listed in Hong Kong.

However, at the time of Wumart's rapid development, in 2006, Zhang Wenzhong was detained on suspicion of bribery and embezzlement, and was sentenced to 12 years in prison in 2009. Zhang Wenzhong was released from prison in 2013 after two commutations. Since then, Zhang Wenzhong has appealed several times, and in 2018, the Supreme Court acquitted Zhang Wenzhong.

The founder's situation also had an impact on Wumart. Since 2009, the performance growth rate of Wumart Commercial has gradually declined, and the stock price has also fluctuated downward. In 2016, Wumart was delisted from the Hong Kong Stock Exchange.

After privatizing Wumart Commercial, Zhang Wenzhong accelerated the pace of "horse racing" and continued to expand his business territory. In 2020, Wumart Group spent 1.58 billion yuan and 1.59 billion euros to acquire an 80% stake in Metro China, including the Chinese business of the old retail giant, and began to plan to return to the capital market.

In March 2021, Wumart Group packaged the retail business of its Wumart supermarket and Metro China into Wumart Technology and submitted it to the Hong Kong Stock Exchange, but as the prospectus expired six months later, Wumart Technology did not submit another prospectus.

Wumart failed to go public, and Zhang Wenzhong began to promote the listing of its retail SaaS solution provider Duodianzhi in Hong Kong. However, from December 2022 to April 2024, Multipoint Intelligence has submitted its report to the Hong Kong Stock Exchange three times and is still in the queue.

During this period, Zhang Wenzhong did not give up promoting the listing of Wumart Technology. Since the failure of the first submission, Wumart Technology has begun to restructure its business. Starting from 2023, Wumart Technology has transferred its Wumart supermarket retail business, METRO China's retail business, advertising, construction engineering and other businesses to Wumart Group, and obtained Wumart's supply chain business from Wumart Group, completely transforming into a supply chain service company, and its main business has also changed to food service and delivery, welfare gifts, retailer distribution, etc. In June this year, the company changed its name to "METRO Supply Chain" and submitted its report to the Hong Kong Stock Exchange for the second time.

According to Frost & Sullivan, METRO Supply Chain is the second largest food FMCG supply chain solution provider and the second largest retail supply chain solution provider in China in terms of revenue in 2023.

According to the prospectus, the proceeds from the listing will be used to strengthen supply chain capabilities, develop differentiated branded products and imported products, maintain and expand customer base, strengthen digital capabilities, conduct mergers and acquisitions, and replenish working capital.

At present, Zhang Wenzhong and his affiliates are the controlling shareholders of METRO Supply Chain. Zhang Wenzhong holds a total of 73.31% of the equity of METRO Supply Chain through a series of companies such as Jingxi Silicon Valley Technology, Zhongsheng Huate Technology, Wumart Technology, and Wumart Southern Technology.

In addition to Wumart companies, METRO Supply Chain has also introduced a number of well-known investors to take shares, including MIC Asset Management, China Merchants Bank, Tencent Holdings, Lenovo Group, Anbang Group, and China Everbright Limited, which are subsidiaries of the Abu Dhabi government.

Highly dependent on Wumart Group

As a supply chain company, METRO's supply chain has a relatively low gross profit margin.

From 2021 to 2023, the revenue of METRO's supply chain will be 27.820 billion yuan, 27.102 billion yuan, and 24.858 billion yuan respectively. The profit for the year was 332 million yuan, -471 million yuan and 253 million yuan respectively. During the same period, the company's gross profit margin was 9.1%, 9.7% and 10.7%, and the net profit margin was 1.2%, -1.7% and 1.0% respectively.

In terms of revenue sources, most of the revenue of METRO's supply chain comes from Wumart Group.

As of the end of 2023, the company has provided retailer delivery services to 100 METRO stores, 366 Wumart supermarket stores and 304 Wumart convenience stores. As a result, Wumart Group has been ranked as the largest customer in METRO's supply chain for many years. From 2021 to 2023, the company's revenue from Wumart Group will be 17.096 billion yuan, 16.886 billion yuan and 15.405 billion yuan respectively, accounting for 61.5%, 62.3% and 62.0% of the total annual revenue, respectively.

In 2023, the decline in revenue received by METRO Supply Chain from Wumart Group has also become an important reason for the decline in the company's overall revenue that year.

In this regard, the company explained that this is mainly due to the reduction of about 15% in the number of Wumart Group stores, and the consumption level of non-member consumers has been affected after Wumart Group has adopted a membership mechanism. In addition, as the impact of the pandemic subsided, consumer demand for shopping also declined.

While receiving a large amount of revenue from related parties, METRO Supply Chain also conducts a large amount of non-trade capital transactions with related parties.

From the end of 2021 to the end of 2023, METRO's supply chain saw a significant increase in the balance of receivables and payables to related parties. The balance of receivables from related parties increased from 1.871 billion yuan to 4.528 billion yuan, of which the balance of non-trade receivables increased from 488 million yuan to 3.150 billion yuan. The balance of payments payable to related parties increased from $815 million to $5,342 million, of which the balance of non-trade payables increased from $513 million to $4,912 million.

METRO Supply Chain said in the prospectus that the increase in its non-trade payments payable to related parties in 2023 was mainly to obtain funds to repay loans. The company also promised that it would settle all the non-trade payments receivable and payable to related parties in the future.

Judging from the prospectus, METRO's supply chain is under great debt pressure. As of the end of 2023, the company's net cash and cash equivalents were only $526 million. In comparison, the company's borrowing balance is as high as 4.777 billion yuan, of which the short-term borrowing balance is 738 million yuan. The above borrowings are mortgage bank loans. As of the end of 2023, the company's cash on hand could no longer cover short-term borrowings.