Although it is known as “the largest retail cloud solution service provider in China and the leading retail cloud solution service provider in Asia,” Duodintech's journey to go public in Hong Kong has had its ups and downs.

The Zhitong Finance App learned that Dmall Inc. (Dmall Inc.) submitted a prospectus to the Hong Kong Stock Exchange on April 30 and applied for listing on the Hong Kong Stock Main Board. However, this is the third time that Daoji has hit Hong Kong stocks. The first two were December 7, 2022, and June 30, 2023, respectively. Furthermore, the first two co-sponsors were CMB International and Credit Suisse, while the current co-sponsors have been adjusted to UBS Group, CMB International, and China Merchants Securities International.

From a financial perspective, it can be described as “prepared” for the third time, and its performance showed a better loss reduction trend. From 2020 to 2023, Multi-Point Smart's revenue was $487 million, $1,045 million, $1,501 million, and $1.75 billion respectively. Revenue continued to grow. Adjusted net loss rates for the same period were 202.3%, 91.8%, 19.7%, and 8%, respectively. Although profit has not yet been realized, the margin of loss continues to shrink rapidly.

As we all know, the biggest criticism of SaaS companies in the current capital market is that it is difficult to achieve profits. With the current loss reduction trend and leading position in the market, is multi-point intelligence favored by market capital? By analyzing its prospectus, you can find answers in it.

Sales and marketing expenses fell sharply and became the main force in reducing losses

Founded in 2015, Multipoint Digital Intelligence has strong roots in its founding and growth with Wumei Group. Wumei Group is a national supermarket chain founded by Zhang Wenzhong, known as the “Godfather of Chinese supermarkets”. After 12 years of listing in Hong Kong, it completed privatization and delisting in 2015. In the same year, Zhang Wenzhong established Multi-Point Smart to launch a digital retail business and provide related services to the affiliated company Wumei Group, thus growing step by step.

Currently, Multi-Point Smart has developed comprehensive retail cloud solutions for customers in various business formats, covering local retail businesses, from procurement and supply chain management, store and headquarters management to marketing and omni-channel sales. Retail formats include supermarket chains, warehousing supermarkets, department stores to convenience stores, specialty retailers, and new retail retailers.

Looking at the business sector, Multipoint Intelligence has three main services, namely retail core service cloud, e-commerce service cloud, and marketing and advertising service cloud, which aim to enhance the operation, marketing and sales capabilities of retailers and brands.

Among them, the retail core service cloud includes the Dmall OS system (including service components such as product procurement process management, supply chain management, product management, store management, and headquarters management) and AIoT solutions, which integrate a series of functions to help retailers digitize and optimize their operations; the e-commerce service cloud helps retailers establish and operate their virtual stores; and the marketing and advertising service cloud helps brands and retailers to market through multi-point mobile apps, applets, and offline advertising services through multi-point intelligent cooperative networks.

Multipoint Smart stated in its prospectus that the company has successfully expanded its business to other countries and regions in Asia, including Hong Kong Special Administrative Region, Macau Special Administrative Region, Cambodia, Philippines, Malaysia and Singapore. However, the company's main market is still in China, and the Mainland and Hong Kong account for 99.5% of revenue. Overseas expansion has yet to bear fruit.

In terms of the number of customers, since 2019, Duodi Digital Smart products and services have shown a trend of rapid penetration in the market. According to the data, from 2019 to 2023, the total number of multi-point smart customers was 69, 135, 352, 569, and 677, respectively, and continued to grow.

As the number of customers continues to increase, the total number of commodity transactions processed through the Multi-Point Smart Operating System also continued to grow. The total commodity transactions from 2019 to 2023 were 19 billion, 36.6 billion, 95.1 billion, 123.3 billion, and 141.9 billion yuan, respectively. The average commission rate of Multipoint Smart has now stabilized at 0.4%.

Continued growth in the number of customers and total transaction amounts led to an upward trend in the revenue trend. From 2021 to 2023, Multipoint Smart's revenue was 1,045 billion yuan, 1,501 billion yuan, and 1.75 billion yuan, respectively, and continued to grow. However, it is worth noting that in these three years, revenue from e-commerce service clouds and marketing and advertising service clouds did not rise but fell, leading to a slowdown in total revenue growth. Total revenue growth was entirely driven by retail core service clouds.

Logically speaking, after accumulating customers using the retail core service cloud, multi-point smart can cross-sell e-commerce service clouds, marketing and advertising service clouds to customers, which can have a strong synergy, but the lack of increase and decrease in revenue from e-commerce service clouds and marketing and advertising service clouds indicates that these two products and services of DTS are not competitive in the market.

In terms of gross margin, in 2023, Multipoint Smart's gross margin was 40.7%, down 4 percentage points from the previous year. This was mainly due to the introduction of additional services by AIoT solutions, and the profit level of this part of the service was low, which lowered the company's overall gross margin level.

Due to a slowdown in total revenue growth and a marked decline in gross margin, in 2023, Duoji Smart's gross profit increased by only 6.48% to 712 million yuan, but the company's adjusted net loss ratio in 2023 was reduced to 8% from 19.7% in 2022, and losses showed a clear narrowing trend.

Looking at the three-fee expenses, we can see that the drastic reduction in sales and marketing expenses is one of the important reasons why Multi-Point Intelligence continues to reduce losses. From 2021 to mid-2023, sales and marketing expenses accounted for 58.2%, 20.5%, and 10.3%, respectively. The amount of sales and marketing expenses dropped sharply from 607 million yuan in 2021 to 180 million yuan in 2023.

Seen from this perspective, under the current commission ratio, it may still be very difficult to achieve profits in the short term. After all, there is not much room for continued reduction in sales and marketing expenses, and if the company increases the speed of business expansion, it will surely lead to an increase in sales and marketing expenses, and the room for improving gross margin is also suppressed by low-margin AIoT services, so it is not appropriate to expect Taoji's profit too high in the short term.

Highly reliant on the top five customers and associated entities

In addition to a break-even point or short-term hopelessness, heavy reliance on big customers is also one of the potential risks of being smart. According to the prospectus, from 2021 to 2023, Multipoint Smart's revenue from the top five customers, including Wumei Group, accounted for 70.2%, 76.6%, and 81.7%, respectively. Multipoint Digital Intelligence said that although the company plans to expand and diversify its customer base, the company will still rely on major customers for the foreseeable future.

It is easy to see from the data that Duodi Digital Intelligence's dependence on the top five customers continues to rise. The number of the company's customers reached 677 in 2023, but the top five accounted for 81.7% of revenue, and the remaining less than 20% of the revenue came from 672 customers.

More importantly, from 2021 to 2023, the share of revenue from related entities was 67.9%, 71.3%, and 74.9%, respectively, while the share of revenue from independent customers showed a downward trend year by year, at 32.1%, 28.7%, and 25.1%, respectively, and revenue growth from independent customers slowed significantly in 2023. This shows that in 2023, the increase in Multi-point Smart's revenue will mainly be achieved by related entities. This is probably also the key reason why Multi-point Smart's sales and marketing expenses will continue to decline, which will drive the company's adjusted net loss to a sharp contraction.

In addition, the retail digital solutions market is fiercely competitive and the market pattern is relatively scattered. After being highly dependent on related entities to become the number one in the domestic market, the market share was 13.3%. If future market and technological changes rapidly change and competition intensifies, then it will surely affect the expansion and profitability level of Multipoint Digital Intelligence.

Overall, Multipoint Smart achieved rapid growth in the number of customers and revenue during the previous reporting period, and showed a clear trend of loss reduction in adjusted net losses, but the loss reduction was still highly dependent on the top five customers and related entities. The loss reduction was mainly due to potential problems such as reducing sales and marketing expenses, slowing revenue from independent customers, intense market competition, and slow overseas expansion, and in the future, as the revenue share of independent customers increases, there is a possibility that the profit difficulty of multi-point smart will increase.