The good news of &#34;entry into the 通&#34; and the frequent bets on AI are driving the stock price of DMALL (02585) to multiply.
Since March, the stock price of DMALL has been continuously rising, with significant increases of 22.81%, 35.01%, and 6.45% on March 7, March 11, and March 19, respectively. As of now, the stock price has cumulatively risen over 92% in 14 trading days. By the close on March 20, its stock price was HKD 12.86, with a total market capitalization of HKD 11.564 billion.
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(Market data source: Futu)
This surge is driven by multiple positive news stimuli.
On March 10, DMALL was officially included in the Hong Kong Stock Connect list. Earlier, from March 3 to March 6, the company showcased its retail digitalization solutions at the 2025 World Mobile Communications Conference.
According to public information, DMALL's AI products have recently integrated with DeepSeek and completed local deployment, and previously connected with domestic and international large models such as Doubao and ChatGPT. The company has provided omnichannel digital solutions for over 400 retail enterprises, including well-known domestic and international retail giants like 7-Eleven, Watsons, Pang Donglai, Bubugao, and Metro.
However, compared to the uplifting effect of the aforementioned positive news, the boost from DMALL's latest financial report seems somewhat &#34;lackluster.&#34;
On March 18, DMALL officially released its 2024 annual performance report. According to the financial report, as of December 31, 2024, the company achieved an annual revenue of RMB 1.859 billion, a 17.3% increase from RMB 1.585 billion in 2023. Gross profit increased by 34.6% from RMB 555 million in 2023 to RMB 746 million. However, the loss during the period was RMB 2.22 billion, a 238.7% increase compared to the RMB 655 million loss in the same period of 2023.
So, what development concerns are hidden behind the divergence between DMALL's stock price and profitability?
<h2>Retail Core Service Cloud &#34;Shouldering the Burden,&#34; Profit Expectations Remain Unknown</h2>
Breaking down the revenue structure, according to previous prospectus disclosures, DMALL's business model primarily relies on a dual-drive approach, namely the Retail Core Service Cloud and E-commerce Service Cloud. However, in recent years, the contribution from these revenue streams has significantly decreased, leading the company's business to evolve from a dual-drive to a single-drive model, with the Retail Core Service Cloud nearly carrying the entire company.
Specifically, the Retail Core Service Cloud mainly includes the DmallOS system (which encompasses services such as product procurement process management, supply chain management, product management, store management, consumer membership management, and headquarters management) and AIoT solutions, integrating a series of functions that help retailers digitalize and optimize their operations.
In 2024, DMALL's Retail Core Service Cloud achieved revenue of RMB 1.810 billion, a year-on-year increase of 39.3%, with its revenue share rising from 81.8% in 2023 to 97.4%
Among them, the DmallOS operating system business achieved revenue of 786 million yuan, and the AIoT solutions business achieved revenue of 1.023 billion yuan.
However, the revenue amount for the e-commerce service cloud has not been disclosed, with its revenue share decreasing from 48.3% in 2021 to 18.9% in 2023 and 0.4% in the first half of 2024, leading to the current situation of &#34;no such item.&#34; DMALL has increasingly moved away from a single-driven model.
Regarding this change, DMALL previously pointed out in its prospectus that almost all supermarket clients transitioned to internal O2O operations in 2023, managing their daily online store operations independently. In this context, the company is gradually phasing out most of its e-commerce service cloud products.
As the retail core service cloud gradually becomes the company's pillar business, its high gross margin characteristics have also significantly boosted the overall gross margin level of the company—financial reports show that in 2024, DMALL achieved a gross profit of 746 million yuan, a year-on-year increase of 34.6%, with the gross margin rising from 35.0% in 2023 to 40.1%.
Furthermore, although the overall gross margin of the company has improved, the gross margin of the retail core service cloud segment has slightly declined, dropping from 41.7% in 2023 to 40.3% in 2024. During this period, the gross margins of the operating system and AIoT solutions under this business segment have both increased compared to 2023, reflecting the company's continuous improvement in business operations. However, despite the increase in gross margins for these two business lines, the overall gross margin of the retail core service cloud has decreased.
The decline in the gross margin of this segment is mainly due to the expansion of the AIoT solutions, which have a lower gross margin compared to other components of the retail core service cloud solutions. The company's AIoT solutions initially incurred higher costs due to outsourcing and labor demands, resulting in relatively low gross margins.
It is important to note that the reduction in sales and marketing expenses has been one of the key reasons for DMALL's continued reduction in losses.
According to previous disclosures in the prospectus, from 2021 to 2023, the company's sales and marketing expenses accounted for 52.5%, 18.0%, and 9.5% of revenue, respectively, with the proportion continuously shrinking, which also means that the impact of the decreasing sales and marketing expenses on the company's profits is gradually diminishing.
As of 2024, DMALL's sales and marketing expenses amounted to 92 million yuan, significantly reduced from 151 million yuan in 2023, with the proportion dropping from 9.5% to about 5% in 2024. Although sales and marketing expenses have further decreased, the core business margin of the company has still declined.
In this context, under the current commission rate, it may still be quite challenging for DMALL to achieve profitability in the short term. After all, there is limited room for further reduction in sales and marketing expenses, and if the company accelerates its business expansion, it will inevitably lead to an increase in sales and marketing expenses, while the potential for gross margin improvement is also constrained by the low-margin AIoT services. Therefore, short-term profit expectations for DMALL should not be overly optimistic.
<h2>Betting on AI to Break Through Growth Bottlenecks</h2>
According to Frost &amp; Sullivan data, the market size of digital retail solutions in Asia is approximately 31 billion yuan in 2023, and it is expected to expand to about 80 billion yuan by 2028, with a CAGR of +20.9%;
During the same period, the market size in China is expected to grow from 18.7 billion yuan to approximately 61.8 billion yuan, with a CAGR of +27.1%, indicating considerable development space and growth rate.
That said, Zhitong Finance observes that this industry also exhibits significant characteristics of intense competition and a fragmented market structure.
Specifically, there are numerous participants in the digital services sector (such as internet giants and vertical service providers), and the gradually lowering technical barriers have led to frequent price wars and compressed profit margins. For example, in the retail digitalization field, giants like Alibaba Cloud and Tencent Cloud are capturing the market through ecological advantages, forcing small and medium-sized service providers to lower their quotes to secure orders.
In this development context, enhancing the company's core competitive advantages and building differentiated technological barriers has evidently become an unavoidable important issue for DMALL.
In its latest financial report, DMALL stated that it will undergo restructuring in 2024, further anchoring its business focus on core retail service cloud solutions, concentrating on two core business segments: the DmallOS operating system and AIoT solutions. At the same time, the company has successfully launched DmallSolution 3.0 through increased innovation investment, which integrates artificial intelligence technology and introduces cutting-edge applications.
In addition, DMALL has positioned GenAI as a core strategic focus, leveraging continuous technological breakthroughs and independent innovation to explore the application potential of GenAI and collaboration with robots in retail scenarios from multiple dimensions, creating a series of AIAgent products exclusive to retail scenarios to promote AI upgrades in retail business.
In short, amidst the surging wave of AI technological transformation, particularly the rapid rise of Generative Artificial Intelligence (GenAI), it is impacting the operational efficiency and business models of various industries at an unprecedented speed and depth. DMALL is also actively embracing the AI wave, attempting to break through growth bottlenecks with innovative technology.
In the past year, DMALL has launched several AI agent products, such as AI clearance, AI customer service, AI quality inspection, AI patrol, AI shopping guide, and AI replenishment, achieving in-depth exploration at various levels in intelligent supply chain management, smart stores, intelligent customer service and quality inspection, and intelligent loss prevention and patrol.
It can be seen that although DMALL is trying to form a moat by strengthening the company's core competitive advantages, it should be noted that it will still face the risk of &#34;high R&amp;D investment and long return cycles.&#34;
Generally speaking, digital solutions require continuous technological iteration (such as AI and big data analysis), which incurs high R&amp;D costs. However, customer demand is fragmented, making it difficult to standardize products, resulting in insufficient economies of scale and a lack of immediate boosting effect on the company's profitability.
Additionally, it should be pointed out that the &#34;dependency on major clients&#34; also reveals the developmental risk that the company's core competitive advantages need to be enhanced.
According to a previous prospectus, from 2021 to 2023, the revenue share from the top five clients, including Wumart Group, accounted for 70.2%, 76.6%, and 81.7%, respectively. Over-reliance on a few major clients also means that the company will invest a large amount of resources in maintaining relationships with these clients, which may limit investments in R&amp;D and innovation. In the long run, this could weaken the competitiveness of technology and services, making it difficult to respond to market changes and challenges from competitors
In summary, although the good news of &#34;Ruitong&#34; and the frequent bets on AI have driven DMALL's stock price to rise recently, &#34;one should take a long-term view.&#34; In the long run, whether the company's profitability can improve remains an important factor influencing the upward or downward movement of the company's stock price

02586

DMALL's stock price has risen over 92% in 14 trading days, mainly driven by positive news, including being included in the Hong Kong Stock Connect list and showcasing AI solutions. However, the latest financial report shows that the company's losses for 2024 have expanded to 2.22 billion yuan, despite a revenue growth of 17.3%. The divergence between stock price and profitability reflects market concerns about its future development

Zhitong

DMALL

What messages do the 14 trading days of over 92% increase in DMALL's stock price and performance divergence reveal?