CKH Holdings (01735): Mid-term revenue surged by 289.8%, achieving phased results in diversified global strategy.

CKH Holdings (01735): Mid-term revenue surged by 289.8%, achieving phased results in diversified global strategy

Leveraging the domestic advantages and synergy effects of its parent company and ultimate controlling shareholder 'CKH Culture', after 2 years of development, the company has grown from a single contractor to a comprehensive group spanning multiple fields.

In terms of achievements, CKH Holdings (01735) can be said to have achieved phased results in its diversified global strategy.

Recently, Zhonghuan Holdings disclosed its 2021 interim performance. During the period, Zhonghuan Holdings achieved a revenue of 0.313 billion Hong Kong dollars, a strong increase of 289.8% compared to the previous year; a gross profit of 16.89 million Hong Kong dollars, an increase of 29120% year-on-year; with the corresponding gross margin increasing from 0.07% to 5.3%. From the changes in core financial data, the diversification effectiveness of Zhonghuan Holdings has been reflected in the financial report, and the company's investment value is becoming more prominent.

Diversification strategy effectiveness validated

Zhonghuan Holdings App believes that Zhonghuan Holdings has transformed its business development strategy and actively implemented a diversified strategy based on practical considerations. In recent years, the business environment of the construction industry in Hong Kong has undergone significant changes, with Zhonghuan Holdings' related businesses facing challenges such as low bidding prices, increased costs, and limited market potential in Hong Kong.

Facing the increasingly narrow traditional business track, Zhonghuan Holdings has shifted its focus to the mainland China market and expanded its business to multiple areas with broad development potential. According to the disclosed data in this financial report, the company's considerable revenue growth during the period mainly came from three main businesses: property management, dining supply chain, and health and medical services, with other sectors also performing satisfactorily.

It is worth mentioning that the newly cultivated property management, dining supply chain, and health and medical services businesses of Zhonghuan Holdings generated revenues of 18.99 million Hong Kong dollars, 27.477 million Hong Kong dollars, and 36.91 million Hong Kong dollars respectively during the period, demonstrating their strong revenue generation capabilities.

Benefiting from significantly increased revenue, Zhonghuan Holdings' gross profit also showed a corresponding growth trend. During the period, the company's gross profit increased to 16.89 million Hong Kong dollars, with a corresponding gross margin rising to 5.3%. It is reported that Zhonghuan Holdings' gross margin increase is mainly due to the high profit margins of the dining supply chain business and the health and medical services business.

It should be noted that due to Zhonghuan Holdings expanding into new business areas in China in the first half of the year and conducting a series of business expansion activities, this led to an increase in the company's administrative and other operating expenses during the period, which somewhat dragged down the company's short-term profit performance. As of the end of the period, the company incurred a net loss of 17.154 million Hong Kong dollars. Zhonghuan Holdings App believes that as the company's new businesses pass the early stage of market incubation in the later period, related expenses are expected to decrease, and the related businesses will enter a mature and stable phase, at which time profits are expected to be fully realized, enhancing the company's future profitability.

Adding to the dining supply chain brings new highlights

In addition to the bright spot of significant performance growth in the interim report of Zhonghuan Holding, another key point to pay attention to is that the company has revealed its next operational direction, which is to continue to strengthen the operation of the dining supply chain business, further develop the supply chain network to gradually increase market share, and enhance the company's overall profitability.

Fintech and Economic APP believes that Zhonghuan Holding's strategic reinforcement of the dining supply chain business is undoubtedly a superior business strategy, regardless of the external environment or its own development perspective.

Firstly, from the perspective of the external environment, with the growth of the economy and the increase in residents dining out, the mainland Chinese dining industry has developed rapidly in recent years, with an increasing degree of chain operation. At the same time, with the rising costs of rent, labor, and ingredients, dining enterprises have higher requirements for food materials due to cost control and standardization.

According to data released by the National Bureau of Statistics, the scale of China's dining market in 2020 is nearly 5 trillion yuan. If calculated based on an average of 30-40% of raw material costs, the scale of the dining food supply chain market is at least 1.5 trillion yuan. Such huge demand will naturally create countless business opportunities.

As for Zhonghuan Holding itself, the company has proven its strength to expand upstream and downstream in the industry chain. Starting from foundation engineering and superstructure construction projects in the early years, the company expanded upstream to layout trading business of building materials, and further downstream to develop property investment and property management business. Now, the company has expanded its business reach to health and medical, smart logistics, and other fields, achieving outstanding results in each area, demonstrating the company's ability to integrate resources up and down the industry chain.

Considering Zhonghuan Holding's own health and wellness business, smart logistics business, extending its business scope to the dining supply chain field is like seizing the opportunity, with good synergy among various business sectors.

Additionally, worth mentioning, in July this year, a wholly-owned subsidiary of Zhonghuan Holding, Goodies (Hong Kong) Catering Management Co., Ltd., organized the '2021 Healthy Food Industry to Boost Rural Revitalization' themed Peak Forum of 77 Catering Day, held at the China Quzhou Xintianpu Ecological Farm and Health Complex Exhibition Center, which is located in the 'base' of Zhonghuan Holding's rural health project.

Previously, the location of Zhonghuan Holding's rural health project in Quzhou City, Qujiang District has been designated as a national modern agriculture demonstration zone, one of the first national agricultural product quality and safety counties, one of the first national agricultural full industrial chain development innovation demonstration zones, and also the main supplier of agricultural products for the 2016 G20 Hangzhou Summit.

Strengthening digital empowerment - strategic cooperation with Tencent Cloud.

On July 30, 2021, CAC Holdings Group signed a strategic cooperation agreement with Tencent Cloud, starting from CAC Holdings' rural and health base strategy based on Tencent Cloud's technical capabilities and industrial ecosystem. There is great potential for both parties in developing the digital economy, and constructing the digital rural areas by using tangible projects as a means to create two major functional platforms: "agricultural products + health product traceability" and "agriculture and health big data demonstration applications". The core focuses on the integration of "digital technology + rural and health base governance", "digital technology + industrial prosperity", "digital technology + common prosperity", to deepen collaboration and jointly promote the implementation of new economic models such as "digital economy + digital rural and health bases". The objective is to transform CAC Holdings' projects into a futuristic digital rural model, serving as an important showcase for local rural and health bases.

At the same time, to support local governments in comprehensive efforts in the digital construction of rural and health bases, smart agriculture, digitization of rural public services, social governance, and intelligent digital economy areas. This will boost local industrial development, achieve industrial economic transformation and upgrading, and overall drive and enhance modernization of agriculture and rural areas.

With significant performance growth and promising future operations, and looking at the performance in the capital market, investors have given a vote of confidence in the company's development. In recent months, CAC Holdings' stock price has continued to rise, indicating a reassessment of the company's investment value.

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