As a leading digital distributor and retailer in China, Aisidi focuses on 3C products with mobile phone as the core, fast-moving consumer goods (FMCG), and new energy vehicles (NEV). In 1H2022, Aisidi earned 91.18% of its revenue from the sales of mobile phones and 8.64% from other products. With its supply chain management advantages and channel resources, Aisidi is poised to register business growth through a dual-wheel strategy of private labels and partner brands.

A leading channel service provider in 3C products, FMCG, and NEV. 1) A leading smartphone distributor: In 2016, Aisidi's subsidiary Coodoo established its leadership as the largest Apple Premium Reseller. By participating in the joint acquisition of Honor, Aisidi became the brand's omni-channel service provider and strategic partner with the largest number of holdings. 2) Ownership concentration with subsidiaries involved in a wide range of business: The actual owner HUANG Shaowu directly or indirectly holds 33.07% stakes in the Company, and the subsidiaries are engaged in the sales of FMCG and NEVs through private labels and partner brands. 3) The mobile phone sales business is a major contributor to operating revenue and profit, while the non-mobile phone sales business drives the growth: The mobile phone business makes up the largest part of the Company's operating revenue, which grew from Rmb56.74bn in 2017 to Rmb95.17bn in 2021, with a CAGR of 13.80%. The YoY growth stood at 44.20% in 2021. In 1H2022, revenue from mobile phone sales reached Rmb41,971mn (+20.61%), accounting for 91.18% of the total, up 2.46ppts, and that from non-mobile phone sales amounted to Rmb3,977mn (-9.17%), accounting for 8.64%, down 2.52ppts. The fast-growing sales of Honor products and non-mobile phone products help drive the Company's business growth.

Under competition for existing consumers, China's smartphone market moves toward 5G, premium models. 1) China's smartphone market is under competition for existing consumers and 5G upgrades drive terminal iteration: China's mobile phone sales volume has been declining steadily, from 560mn units in 2016 to 310mn units in 2020.

The sales volume of 5G smartphones in China grew quickly from 13mn units in 2019 when 5G smartphones were first introduced to 266mn units in 2021.

As the rush to switch to 5G smartphones steps into the mid-later stage, the market is under competition for existing consumers and 5G upgrades may drive terminal development. 2) Smartphone ASP continues and is expected to climb with the popularity of premium models. 3) Strong performance in the sales of Apple and Honor products. Apple and Honor lead the market in terms of market share, with rising sales revenue and sales volume during the 618 shopping festival against the downtrend.

Expand into new market segments with new brands. 1) A wide distribution network for Apple; By the end of 1H2022, Aisidi operates 131 Apple Premium Reseller stores under the name of Coodoo in core business districts in Tier 1-3 cities nationwide, and it manages and operates more than 960 Apple authorized stores (MONO AAR+/APR). It is one of Apple's largest retail service providers in China. 2) A mature supply chain system: Aisidi has built 5 distribution centers, over 30 regional sub-warehouses, and warehousing outlets in more than 10 countries and regions, such as Hong Kong, Singapore, Dubai, and the United States. 3) Digital empowerment for value-added services: A digital supply chain has been put in place through continuous iterative optimization to build a global warehousing network. By integrating logistics, business flow, capital flow, and information flow, Aisidi provides value-added supply chain financial services, guaranteeing customers safe, professional, and efficient one-stop supply chain services. 4) Expansion into FMCG and NEV: Aisidi is trying to replicate its supply chain advantages and successful experience in FMCG and NEV.

The Company works with brands in wine, personal care, tea, and vaping, and has created private labels such as KAI TEA, ROZU, and UOIN. A dual-wheel strategy of private labels and partner brands has been established.

Potential risks: Less-than-expected physical retail sales volume due to recurring scattered epidemic outbreaks; restricted chip imports due to worsening international relations; less-than-expected e-cigarette sales revenue under tightening policy control; less-than-expected expansion of new partner brands and private labels.

Investment strategy: Robust performance of Apple and Honor against the downtrend ensures high YoY growth in the revenue from mobile phone sales, a focus of Aisidi. Its non-mobile phone business is expected to be a new growth driver. We estimate the 2022E-24E sales revenue from the mobile phone business to grow by 20%/20%/10% YoY and the profit margin to be 2.5%/2.5%/2.5%; the sales revenue from the non-mobile phone business to grow by 10%/10%/10% YoY and the profit margin to be 12%/13%/14%; and the net profit to be Rmb1,221mn/1,523mn/1,786mn, corresponding to EPS forecast of Rmb0.99/1.23/1.44 and to 9.7/7.8/6.6x PE at current price. The average valuation of comparable companies including Telling, Kidswant, Aiyingshi, and VATS Liquor Chain Store is 65.3x PE (TTM) as of Sep 13, 2022, which is higher than Aisidi's 11.6x PE (TTM). We remain optimistic about investing in the Company.