经销模式

In 2022, 2023 and 2024, revenue generated from our franchise model contributed 52.9%, 55.4% and 50.5% of our revenue, respectively, our self-operated stores contributed 11.7%, 9.5% and 8.0% of our revenue, respectively, and our online sales channels contributed 34.6%, 33.9% and 40.0% of our revenue, respectively.

We do not set up minimum procurement target to our franchise stores to avoid overload of goods stuck in our franchise stores.

For years ended December 31, 2022, 2023 and 2024, the amount of returned products from our franchisees amounted to RMB4.7 million, RMB1.8 million and RMB3.1 million, respectively, accounting for 0.3%, 0.1% and 0.1% of our revenue from our franchise model, respectively.

In 2022, 2023 and 2024, our sales to distributors amounted to RMB23,384.1 million, RMB22,366.8 million and RMB24,531.6 million, respectively, representing 98.3%, 98.0% and 97.6% of our total revenue from product sales in the same periods.

In 2022, 2023 and 2024, the number of new distributors joined were 933, 672 and 725, and the number of distributors ceased to distribute our products were 1,191, 1,253 and 609 distributors, respectively.

We have implemented a comprehensive set of measures to avoid channel stuffing risk: (i) we generally require full upfront payment of contract price before delivering products to our distributors, by which arrangement we believe our distributors would place orders with us based on their actual sales forecasts; we generally do not allow returns of products sold to distributors except for quality issues caused by us; (ii) our sales team keeps collaborative communication with our distributors to understand their sales performance and arrange periodic onsite visits; (iii) we also closely communicate with our distributors in relation to their inventory levels; and (iv) we optimize our sales and distribution management with digital management tools such as the Xiaokang Maimai and our product code tracking program.

During the Track Record Period, approximately 21.6%, 31.8% and 51.8% respectively of our revenue was derived from our Other Wholesalers customers.

It is our business strategy to establish strategic business relationships with Other Wholesalers to enter into their local markets by taking advantage of their local connections.

We do not (i) impose any minimum purchase obligation on our Other Wholesalers customers; or (ii) have control over our Other Wholesalers customers.

For FY2022, FY2023 and FY2024, our revenue from sales to distributors amounted to RMB22.7 million, RMB37.5 million and RMB14.7 million, accounting for 5.8%, 10.8% and 4.2% of our total revenue, respectively.

The turnover rates of our distributors were 16.4%, 6.6% and 74.1% for FY2022, FY2023 and FY2024, respectively.

The decrease in our sales to distributors and the number of our distributors for FY2024 were primarily attributable to our strategies (i) to increase the proportion of our direct sales, in consideration of our amplified efforts in sales and marketing through participation in more exhibitions and trade fairs, providing direct opportunities for us to reach out to potential customers and acquire new ones; (ii) to deepen our business collaborations with selected competent distributors and maintain only a small group of distributors so as to ensure alignment with our performance standards and business objectives, while reducing our administrative burden in managing a larger number of distributors, thereby allowing us to make use of the distribution networks, local market insights, and sales and marketing expertise of our distributors without incurring substantial costs; and (iii) not to renew the distribution agreements of distributors with overall unsatisfactory performances, such as failing to meet the minimum purchase requirements when we assessed their sales performance and qualifications.

In 2024, revenue from distribution with the assistance of business partners on Niubao 100 amounted to RMB864.6 million and accounted for 62.8% of our total revenue from insurance transaction services.

We conduct semi-annual reviews of the commissions to our insurance agents and business partners.

we proactively take preventive measures including regularly monitoring the activities of self-media traffic channels and reviewing articles prepared by self-media traffic channels before the articles are posted.

We generate revenue from sales of pharmaceutical products in China predominantly by selling our products to distributors who, in turn, sell our products to hospitals, other medical institutions, and pharmacies.

As of December 31, 2024, our distribution network comprised 597 distributors across over 30 provincial-level regions in China and for overseas markets.

In 2022, 2023, and 2024, a total of 34, 52, and 32 distributors were terminated, respectively.

In line with the industry practice, we also cooperate with distributors who purchase products and/or testing services from us and further sell them to downstream customers, such as certain hospitals, clinics, and health checkup centers.

As of December 31, 2022, 2023 and 2024, we had a total of 10, 25 and 18 distributors, respectively.

The termination of existing distributors in 2024 was mainly due to the adjustment of our distributorship strategy to focus on direct sales which lower distributor margins and increase our profit margins.

We generated revenue of RMB44.9 million, RMB85.3 million and RMB289.3 million from sales to these distributors in 2022, 2023 and 2024, respectively, accounting for 12.5%, 18.4% and 45.5% of our total revenue during the corresponding years.

In 2022, 2023 and 2024, we terminated relationships with 27, 29 and 27 independent distributors, respectively.

We may request distributors to provide reports on the status of product sales, leases or usage in machinery operation services for end users, allowing us to monitor and assess their inventory management, quickly identify potential issues and take corrective action as necessary.

Our Directors are of the view that the risk of excessive inventory accumulation by our wholesale customers and the risk of channel stuffing of the products sold by us to our wholesale customers are low because (i) grains and oil and food products are perishable in nature and have short shelf lives; (ii) we only grant our wholesale customers credit terms up to three months; (iii) our wholesale customers can only return the products with quality issues, and we did not experience any material sales return or product exchanges from our wholesale customers during the Track Record Period.

The number of our wholesale customers decreased during FY2023 and slightly increased for 9M2024 despite that the number of our wholesale customers in 9M2024 was still less than those in FY2021 and FY2022. Such changes were mainly driven by wholesale distributor consolidation in the PRC market in 2023 and 2024.

As advised by the Industry Consultant, during the Track Record Period, market turnover rate of regional distributors in the PRC was generally 20% to 40%.

As of December 31, 2021, 2022 and 2023 and September 30, 2024, our store network encompassed 20,001, 28,983, 37,565 and 45,302 stores, respectively, with over 99% of them being franchised stores.

Substantially all of our revenue is generated by selling store supplies and equipment to our franchisees.

We derive our revenues primarily by sales of goods and equipment to franchised stores instead of franchise fee, and thus we are well incentivized to empower the franchisees, facilitating their sustainable prosperity.

In 2021, 2022 and 2023, revenue from franchised stores accounted for 97.9%, 97.9% and 97.1% of our total revenue, respectively.

For the nine months ended September 30, 2024, we opened new stores at a slower pace than we did in 2023 and closed more stores than we did in 2023, primarily because (i) the freshly-made tea store market experienced a slowdown in growth, and (ii) there was increased competition within the industry, with some players launching low-priced products.

In 2021, 2022, 2023 and the nine months ended September 30, 2024, our franchisee turnover rate was 6.2%, 6.7%, 8.3% and 11.7%, respectively, where franchisee turnover rate is calculated as the number of franchisees terminated in a given year divided by the sum of the number of franchisees at the beginning of the year and the number of franchisees enrolled in the year.

Our offline distribution sales amounted to RMB112.8 million, RMB157.0 million, RMB732.7 million, RMB238.1 million and RMB957.9 million, accounting for 34.2%, 48.2%, 83.6%, 76.8% and 91.6% of our total revenue in 2021, 2022, 2023 and the six months ended June 30, 2023 and 2024, respectively.

We implement a series of measures to manage the inventory level of distributors.

In addition, if we identify unusually large purchase orders, we may seek to verify the business reasons before accepting such orders.

For the three years ended December 31, 2023 and for the six months ended June 30, 2024, revenues generated from sales of RVs through our dealers were approximately RMB298.6 million, RMB472.8 million, RMB581.6 million and RMB252.5 million, representing 100.0%, 94.9%, 81.8% and 63.6% of our revenues generated from sales of RVs, respectively.

According to Frost & Sullivan, it is consistent with industry norm for providers of RV products to engage dealers in order to take advantage of their knowledge in relation to local marketing practices and consumer preferences.

As of the Latest Practicable Date, the total amount of unsold inventory held by our sales channel operators was 662 units, of which 50 units were aged over one year.

During the Track Record Period, we generated revenue from our sales directly to our distributors in the amount of approximately RMB8.5 million, nil, nil and RMB0.7 million, respectively, which accounted for approximately 7.9%, nil, nil and 1.3% of our total revenue, respectively.

We maintain a seller-buyer relationship with our distributors whereby we sell our software products to our distributors which then resell them directly to the end customers mainly targeting automotive manufacturers and technology companies.

We select our distributors based on stringent criteria, including without limitation: (i) their customer resources and sales network; and (ii) having technical personnel suitable for selling our software products and the relevant know-how and expertise regarding our software products.

As at the Latest Practicable Date, we had a total of 17 regional distributors in the PRC, which then sold and distributed our products to retail outlets including pharmacies, maternal and children product stores and postpartum care centres or to the sub-distributors of the regional distributors.

As a result, there were more termination or non-renewal of distribution agreement, and the number of our regional distributors decreased from 26 as at 31 December 2023 to 17 as at 30 June 2024.

However, we monitor the purchase orders of our regional distributors and we hold discussions with our regional distributors when there is significant variation in their demands in order to better understand market demands for our products and to prevent artificial sales which are not supported by the ultimate end customers' demand.

As of December 31, 2021, 2022, 2023 and June 30, 2024, we had 19, 29, 36 and 37 distributors, respectively.

In 2021, 2022, 2023 and the six months ended June 30, 2023 and 2024, revenue from our distributors amounted to RMB24.3 million, RMB85.7 million, RMB176.1 million, RMB61.2 million and RMB128.1 million, respectively, representing 35.6%, 62.9%, 29.7%, 19.8% and 33.2% of the total revenue for the respective periods.

We control channel stuffing risks through our internal management policies for distributors and measures including keeping track of the information of end customers and monitoring monthly shipments of distributors.

In 2021, 2022, 2023 and the six months ended June 30, 2024, there were 344, 387, 358 and 224 distributors, respectively.

In 2021, 2022 and 2023, the number of our exiting distributors was 160, 180 and 187, respectively, accounting for 46.5%, 46.5% and 52.2% of the number of our distributors at the end of respective years.

We also provide them with product procurement guidance based on their respective circumstances as part of our efforts to control and monitor our distributors' inventories.

The wholesale business was one of our main streams of revenue during the Track Record Period, which amounted to approximately HK$93.8 million, HK$94.1 million, HK$118.0 million and HK$45.6 million and accounted for approximately 49.7%, 45.2%, 47.0% and 38.7% of our total revenue for FY2021, FY2022, FY2023 and 6M2024, respectively.

Therefore, we generally have no obligation to help our wholesale customers to dispose of their unsold products in any circumstance and we are not entitled to monitor the performance or inventory of our wholesale customers, which according to the F&S Report, is in line with the market practice in both the health supplements market and the cosmetics and skincare products market in Hong Kong.

Our relationship with our major wholesale customers during the Track Record Period remained relatively stable, which our Directors believe was primarily attributable to our effective management in fostering good business relationships with our wholesale customers.

In 2021, 2022, 2023 and the six months ended June 30, 2023 and 2024, revenue generated from online and offline distributorship accounted for 15.1%, 13.3%, 11.4%, 11.1% and 12.5% of our revenue from product sales, respectively.

We generally require a full payment before delivering products to distributors or grant a short credit period to selected distributors.

During the Track Record Period, we maintained a relatively low return rate from our distributors of 1.07%, 0.37%, 4.42% and 0.13% in 2021, 2022, 2023 and the six months ended June 30, 2024, respectively.

As of June 30, 2024, we had established a comprehensive franchise network including 2,850 franchise stores operated by 1,670 franchisees, seven self-operated direct service centers and 17 provincial-dealers.

In order to prevent channel stuffing, we have adopted a transaction arrangement that all sales between (i) our Group and provincial-dealers, and (ii) our self-operated direct service centers and our franchisees, are buyout sales.

As of December 31, 2023 and June 30, 2024, based on the information available on our CRM system, the amount of inventories held by our franchisees were 24,266.8kg and 25,868.6kg, respectively.