On August 28, China's home appliance industry giant Midea Group Co.,Ltd. (000333.SZ, 00300.HK) released an announcement regarding the progress of spinning off a subsidiary for listing on the main board of the Hong Kong Stock Exchange. The announcement declared the spin-off of subsidiary ANDE Smart Supply Chain Technology Co., Ltd. (ANDE Smart Supply Chain) for listing on the HKEx main board, with ANDE Smart Supply Chain simultaneously submitting its prospectus, with CICC and Morgan Stanley serving as joint sponsors.

Public information shows that ANDE Smart Supply Chain was established in 2000, formerly known as ANDE Logistics, later renamed to ANDE Smart Supply Chain, serving as an important component of Midea Group Co.,Ltd.'s home appliance supply chain business layout. As early as 2009, ANDE Logistics had sought independent listing on A-shares, but was shelved due to excessive related transaction ratios with parent company Midea Group Co.,Ltd.. In 2023, ANDE Smart Supply Chain signed an IPO counseling agreement with CICC, planning to list on the Shenzhen Stock Exchange main board, but in January this year, the company terminated its A-share IPO citing "business development considerations" among other reasons.

Backed by Midea, ANDE Smart Supply Chain held a 27.1% market share among China's integrated supply chain logistics solution providers for home appliances in 2024, ranking first (by revenue). More notably, the company received "recognition" worth 1.52 billion yuan from a competitor just before submitting its application to HKEx. In June this year, Hisense Group became the second-largest shareholder after Midea Smart by investing 1.52 billion yuan in ANDE Smart Supply Chain for a 22.03% stake.

As China's manufacturing capacity expands overseas, supply chain service providers, known as the "lifeline" of manufacturing, naturally face the choice of following overseas expansion. ANDE Smart Supply Chain's choice to list on Hong Kong stocks can be inferred as having strategic considerations for its future global supply chain layout. For this IPO, the company's fundraising will mainly be used for: (1) expanding the depth and breadth of domestic logistics solutions; (2) developing international supply chain business to capture overseas supply chain development opportunities; (3) digital intelligence R&D, promoting AI and algorithm applications in digital transformation across the entire supply chain; (4) working capital and other general purposes.

1 Rising Service Costs, Single-Digit Gross Margins

Supply chain is an important component of enterprise cost control. Driven by AI technology, achieving supply chain visualization and digital intelligence management through technological empowerment has become an industry trend. ANDE Smart Supply Chain provides integrated supply chain logistics solutions from production, distribution to end delivery through its self-developed ANDE Smart Chain Platform (ALT), aiming to help enterprises achieve supply chain coordination and efficient cost reduction and quality improvement.

The company primarily focuses on supply chain services for home appliances and home furnishing, FMCG, and new energy sectors. Besides Midea Group Co.,Ltd., it has also established cooperation with well-known consumer brands such as Hsu Fu Chi, Tsingtao Brewery, and Dongfeng Motor in recent years. The number of integrated supply chain logistics solution clients from 2022-2024 and the first half of this year were 3,531, 3,962, 5,399, and 7,371 respectively.

Simply put, ANDE Smart Supply Chain's integrated supply chain solutions are realized through a "1+3" model, where "1" refers to providing end-to-end services across the entire supply chain from production, distribution to end delivery, and "3" refers to three solution pillars: production logistics solutions, unified warehousing and distribution solutions, and last-mile delivery and installation integration solutions.

The so-called production logistics solutions are similar to factory assembly lines, ensuring timely and accurate delivery of materials needed for each production stage. Unified warehousing and distribution solutions involve online and offline omnichannel inventory sharing and unified allocation, similar to JD.com's self-operated logistics model. Last-mile delivery and installation integration refers to door-to-door installation services, commonly applied to large home appliance purchases.

Due to the company's business being closely related to modern daily life, ANDE Smart Supply Chain's revenue exceeded 10 billion yuan during the reporting period (2022-2024 and first half of 2025), reaching 14.173 billion yuan, 16.224 billion yuan, 18.663 billion yuan, and 10.885 billion yuan respectively. Period profits were 215 million yuan, 288 million yuan, 380 million yuan, and 248 million yuan respectively, with adjusted period profits of 230 million yuan, 299 million yuan, 388 million yuan, and 268 million yuan respectively.

From 2022-2024, the company's revenue compound growth rate was 14.8%, with net profit compound growth rate reaching 33%. Adjusted net profit margins were 1.6%, 1.8%, 2.1%, and 2.5% respectively.

ANDE Smart Supply Chain's business can be divided by service category into integrated supply chain logistics solutions and basic logistics services, with integrated supply chain solutions being the main revenue source, accounting for 85.8%, 86.9%, 87.6%, and 85.3% of revenue in each period respectively. Basic logistics services accounted for 14.2%, 13.1%, 12.4%, and 14.7% respectively.

Although the company's net profit margin showed an upward trend during the period, gross margins were not particularly high.

In each period, ANDE Smart Supply Chain's core business integrated supply chain logistics solutions had gross margins of 7.7%, 8.1%, 7.9%, and 8% respectively, while basic logistics services had gross margins of only 1.4%, 2.2%, 2.8%, and 3.6% respectively.

Within integrated supply chain solutions, unified warehousing and distribution, which accounts for over 60% of revenue, had gross margins of 6.5%, 7%, 6.7%, and 7.1% respectively, declining 0.3 percentage points year-over-year in 2024 and continuing to decline 0.2 percentage points year-over-year in the first half of this year.

In each period, ANDE Smart Supply Chain's overall gross margins were 6.8%, 7.3%, 7.3%, and 7.4% respectively, declining 0.3 percentage points year-over-year in the first half of this year.

The company stated that the stable gross margins at 7.3% in 2023 and 2024 were mainly due to stable gross margins for last-mile delivery and installation integration. Due to adopting more competitive pricing strategies, gross margins for production logistics and unified warehousing and distribution declined. The increase in basic logistics services gross margin in 2024 compared to 2023 was mainly due to simplifying existing services with lower profit margins and introducing new services with higher profit margins.

It should be noted that while gross margins do not show obvious advantages, the company's service costs have been rising annually, reaching 13.204 billion yuan, 15.039 billion yuan, 17.308 billion yuan, and 10.079 billion yuan in each period respectively. 2024 costs increased 31.08% compared to 2022, with the first half of this year continuing to grow 20.64% year-over-year.

From 2022-2024, the company received government subsidies of 30.867 million yuan, 52.134 million yuan, and 61.36 million yuan respectively, with 35.015 million yuan in the first half of this year (compared to 34.369 million yuan in the same period last year).

2 Midea Group Co.,Ltd. Contributes 40% of Revenue, Customer-Supplier Overlap

Years ago when seeking A-share listing, ANDE Smart Supply Chain attracted external attention due to related transactions with parent company Midea Group Co.,Ltd.. This situation persists with the current HKEx application.

In each period, ANDE Smart Supply Chain's revenue from top five customers accounted for 49.8%, 48.6%, 52.1%, and 49.7% respectively, with Midea Group Co.,Ltd. remaining the largest customer in each period. Revenue from Midea reached 5.342 billion yuan, 5.938 billion yuan, 7.675 billion yuan, and 4.398 billion yuan respectively, accounting for 37.7%, 36.6%, 41.1%, and 40.4% of revenue. All other customers besides Midea Group Co.,Ltd. were anonymized.

ANDE Smart Supply Chain also acknowledged in its prospectus that all top five customers during the reporting period were also corresponding suppliers, with purchases from the top five customers accounting for 6.6%, 3.6%, 2.9%, and 3.6% respectively. In each period, the company's purchases from top five suppliers accounted for 19.9%, 11.7%, 13.2%, and 16.9% respectively.

While top five customers account for 50% of revenue, the company's trade receivables and notes receivable in each period were 2.001 billion yuan, 1.895 billion yuan, 2.004 billion yuan, and 2.749 billion yuan respectively, with trade receivables and notes receivable from Midea Group Co.,Ltd. being 393 million yuan, 186 million yuan, 238 million yuan, and 824 million yuan respectively.

Notably, in upstream procurement, although the company's purchases from top five suppliers account for less than 20%, trade payables and notes payable in each period reached 3.009 billion yuan, 3.515 billion yuan, 3.9 billion yuan, and 4.708 billion yuan respectively. ANDE Smart Supply Chain stated this was mainly due to increased payables and notes payable to support business growth.

In contrast to billions in receivables and payables, the company's contract liabilities in each period were only 114 million yuan, 84.01 million yuan, 127 million yuan, and 90.435 million yuan respectively.

3 Bank Loans Surge, Three Years of Dividends Totaling 582 Million

While facing significant upstream and downstream payment pressures, ANDE Smart Supply Chain has not stopped business expansion.

As of the end of June this year, the company's bank loans reached 1.4 billion yuan (compared to 548 million yuan at the end of last year), more than doubling from the previous year, with lease liabilities of 1.22 billion yuan during the same period. From 2022-2024, ANDE Smart Supply Chain's bank loans fluctuated significantly, at 21.325 million yuan, 1.08 billion yuan, and 548 million yuan respectively, with lease liabilities of 988 million yuan, 1.295 billion yuan, and 1.184 billion yuan respectively.

ANDE Smart Supply Chain stated that the increase in liabilities was mainly due to leasing more warehouses and equipment and paying working capital to support business expansion.

Like bank loans, ANDE Smart Supply Chain's debt ratios in each period also showed a roller-coaster pattern, at 1.7%, 74.4%, 32.8%, and 38.9% respectively.

In terms of cash flow, investment activity cash flows in each period were in continuous outflow, at -48.952 million yuan, -235 million yuan, -1.387 billion yuan, and -2.328 billion yuan respectively. The company stated this was mainly due to expenditures on purchasing financial assets and acquiring property, plant and equipment.

Operating activity cash flows during the same period were 782 million yuan, 1.469 billion yuan, 980 million yuan, and 406 million yuan respectively, with 2024 declining 33.29% year-over-year and the end of June this year declining 35.9% year-over-year.

Renowned business consultant and corporate strategy expert Huo Hongyi stated that bank loans more than doubling and continuous investment cash outflows indicate the company has placed its "chips" on development, but contract liabilities in each period are relatively low, meaning customers haven't provided sufficient "reassurance." In this situation of expansion, the company needs to pay attention to two points: first, whether it has locked in sufficient order sources in advance; second, how strong its cash flow control capability is. If there aren't sufficient order guarantees and expansion relies on borrowing, the company should be alert to potential future cash flow tensions.

Huo Hongyi further stated that overseas layout is inherently a medium to long-term process, with initial investment and growing pains being normal. However, the company needs to manage "expectation gaps" well, such as putting more energy into localization operational capabilities, achieving efficiency, and securing higher-quality customer structures. Running steadily is better than running fast, especially in the current cycle of increased global uncertainty.

It's worth noting that although the company repeatedly emphasizes its desire to use AI technology to achieve supply chain visualization and digital intelligence management, and this fundraising also aims to be used for R&D and promoting AI and algorithm applications in digital transformation across the entire supply chain, its R&D expense ratios in each period were only 0.7%, 1.1%, 1.1%, and 1.1% respectively.

Regarding dividends, the company has consistently maintained dividend payments from 2022-2024 and the first half of this year, with dividend amounts of 80.1 million yuan, 108 million yuan, 167 million yuan, and 227 million yuan respectively, totaling 582 million yuan in cumulative dividends. In the first half of this year when dividends reached 227 million yuan, the period's profit was only 248 million yuan.

The prospectus shows that ANDE Smart Supply Chain's then-Chairman and President Mr. Liang Pengfei had already worked at Midea Group Co.,Ltd. for over 20 years before joining ANDE Smart Supply Chain in 2019. Then-CFO and Secretary Mr. Ma Liang had also worked at Midea Group Co.,Ltd. for over 10 years before joining in 2019. Additionally, several other directors of the company also came from Midea Group Co.,Ltd..

In terms of shareholding structure, as of the prospectus signing date, Midea Group Co.,Ltd. holds 52.94% of shares through wholly-owned subsidiary Midea Smart, serving as the controlling shareholder. Behind Midea Group Co.,Ltd. is the actual controller, the famous Foshan's richest person and commercial magnate who single-handedly created the Midea empire, He Xiangjian. As outsiders speculate, if ANDE Smart Supply Chain's IPO succeeds, the He Xiangjian family will harvest their 10th IPO.