Huitongda puts its cash to work with investment in struggling supplier

The Alibaba-backed e-commerce company will pay 994 million yuan for 25% of Jin Tong Ling, a maker of industrial equipment now undergoing a court-led restructuring

Key Takeaways:

• Huitongda will pay nearly 1 billion yuan for 25% of the struggling Jin Tong Ling, representing a steep discount to the Shenzhen-listed company’s recent stock price
• Huitongda believes Jin Tong Ling will quickly return to profitability following a quick court-led restructuring, and could become an important supplier for its e-commerce business

By Doug Young

What do you do when you’re sitting on a large pile of cash from an e-commerce business that’s big but not extremely profitable? If you’re Huitongda Network Co. Ltd. (9878.HK), you spend a chunk of that money to buy a sizable stake at a big discount in a supplier that’s fallen on hard times but could soon return to health following a reorganization.

The story seems positive enough for Huitongda, which announced on Friday it would acquire 25% of Shenzhen-listed Jin Tong Ling Technology Group Co. Ltd. (300091.SZ) for 994 million yuan ($139 million). The deal’s financial terms look quite good for Huitongda, whose proposed purchase of 711 million Jin Tong Ling shares at a price of 1.3996 yuan per share represents a 50% discount to the stock’s average price over the last 120 trading days.

The investment also seems to make strategic sense for Huitongda, which buys industrial and other goods in bulk and sells them over its e-commerce platform to businesses in smaller Chinese cities and towns, locally referred to as “sunken markets.” As a relatively large maker of industrial blowers, compressors, steam turbines and industrial boilers, Jin Tong Ling’s products should be a good match for Huitongda’s customers.

But investors in both companies didn’t seem to think too highly of the deal. Huitongda’s investors were the least satisfied, with the stock falling as much 12.4% in Monday morning trade after the deal was announced before closing down 10.1% at the midday break. Jin Tong Ling investors initially applauded the deal, sending the stock up when trading began, only to change their minds and bid the shares down by about 2.2% at the middle of the trading day.

The deal looks relatively sound for Huitongda, as it will provide the company with more products for its platform, presumably at nice discounts from Jin Tong Ling. The big risk, of course, is whether Jin Tong Ling can return to its earlier days of strong growth and profits following its ongoing restructuring. That could be easier said than done in China’s current economic climate, where many businesses are struggling amid sluggish demand.

From Jin Tong Ling’s perspective, the deal also looks reasonably sound, though some investors might not be happy about the big discount Huitongda got for its stake. But a struggling company can’t afford to be too selective about such matters, and the new investment will not only bring Jin Tong Ling more than $100 million in much-needed cash, but could also provide a major new sales outlet for its products.

“(Jin Tong Ling) operates in the high-end manufacturing sector, with its core business ranking among the first tier domestically, possessing strong industry standing and competitiveness. Due to historical circumstances, (it) currently faces temporary operational difficulties and aims to overcome its predicament and regain operational capability through this bankruptcy restructuring,” Huitongda wrote in its announcement. “It is anticipated that upon the completion of the restructuring, it will swiftly achieve profitability and enter a phase of rapid development, bolstered by the dual injection of capital and assets.”

Steady business, low margins

Huitongda could certainly use a catalyst like the Jin Tong Ling investment to perk up its own business, which is relatively steady but also extremely low-margin due to the company’s status as an e-commerce middleman. Huitongda, backed by e-commerce giant Alibaba, went public in 2022 at an IPO price of HK$43, hoping to entice investors with its story of e-commerce targeted at China’s sunken markets. But since then the stock has lost about two-thirds of its value to trade around HK$15.

That said, Huitongda is profitable, and has strong support among both the investment and analyst communities. Even after its stock declines of the last three years, its shares still trade at a forward price-to-earnings (P/E) ratio of 20, nearly double the 11 for PDD Holdings (PDD.US), which targets consumers in China’s sunken markets. It’s also nearly triple the forward P/E ratio of 6 for Vipshop (VIPS.US), another e-commerce company that targets discount shoppers. All five of the analysts surveyed by Yahoo Finance rate Huitongda a “buy” or “strong buy.”

The high P/E ratio and strong analyst support are slightly surprising for Huitongda, since its own financial picture isn’t that exciting lately. The company was growing strongly as recently as 2023, with revenue up 24% that year. But things went into reverse last year with a 29% revenue decline. The situation continued to deteriorate in the first half of this year when the figure fell by another 26% year-on-year to 24.3 billion yuan from 32.9 billion yuan a year earlier.

The company said the declines owed partly to its divestment of inefficient businesses and the establishment of its own brands. That may help to explain why, despite the revenue declines, the company’s profit rose 11% in the first half of this year to 139 million yuan from 125 million yuan a year earlier. Its gross margin also improved to 4.6% in the first half of this year from 3.5% a year earlier. Both figures are quite low due to Huitongda’s middleman business model, but their improvement shows the company is working to stay profitable.

Huitongda had 6.74 billion yuan in cash and cash equivalents at the end of June, showing it could easily purchase the Jin Tong Lin stake using its own financial resources.

Jin Tong Lin’s situation looks a bit more uncertain. The company has been undergoing a restructuring since April following an application by one of its creditors. The court overseeing the matter in the city of Nantong has accepted the company’s pre-reorganization application, showing the case is advancing relatively quickly. Jin Tong Lin’s own finances look a bit shaky at the moment, with its revenue plunging 48% year-on-year in the first half of 2025 to 370 million yuan, as its loss more than doubled to 202 million yuan from 76 million yuan a year earlier.

The rapid resolution of Jin Tong Lin’s case by the court appears to show the company’s difficulties aren’t too severe, which is probably why Huitongda is confident its new partner will quickly return to profitability. If that happens, the purchase could provide a strong template for Huitongda going forward, with the company using its strong cash position and solid profitability to acquire strategic stakes in potential supplier partners.

To subscribe to Bamboo Works free weekly newsletter, click here