After being "abandoned" by Alibaba, SUNART RETAIL (06808.HK) welcomed a former Hema executive.
According to an announcement from SUNART RETAIL, Shen Hui, the former executive director and CEO, resigned due to family reasons, effective December 1. His position was taken over by Li Weiping, former Chief Merchandising Officer of Hema. Public reports indicate that Li previously served as General Manager of Lotte Mart North China and Senior Purchasing Manager at CR Vanguard. After joining Hema in 2018, she held key roles including CEO of Hema Fresh and Chief Merchandising Officer, leading product system development and direct sourcing, playing a crucial role in turning around regional losses for Hema.
Earlier this year, Shen Hui led a team to study the business model of Pang Donglai in Xuchang, Henan, following peers like Yonghui and BBK (维权) in planning a comprehensive offline store transformation. However, just nine months later, the company abandoned the "Pang Donglai model" focused on customer experience in favor of Hema’s efficiency-driven approach.
**Alibaba’s Seven-Year Stint Ends with a Discounted Exit; DCP Steps In for Overhaul** SUNART RETAIL was once a critical part of Alibaba’s "New Retail" strategy.
In November 2017, Alibaba acquired a 36.16% stake in SUNART RETAIL at HK$6.50 per share, becoming its second-largest shareholder with a total investment of HK$22.425 billion. At the time, SUNART RETAIL was at its peak, with revenue exceeding RMB 100 billion for three consecutive years, adjusted net profit stabilizing around RMB 2.5 billion, and operating cash flow nearing RMB 7 billion. In 2019, despite a slight revenue dip, gross margin hit a record 27.0%, with net profit reaching RMB 2.834 billion.
In October 2020, Alibaba further invested at HK$8.10 per share, raising its direct and indirect stake to 77.02% for a total of HK$27.957 billion. Post-investment, SUNART RETAIL became a consolidated subsidiary of Alibaba, aligning its fiscal year-end with Alibaba’s. Alibaba appointed then-VP Lin Xiaohai as executive director, while founder Huang Mingduan remained chairman.
By then, Alibaba had invested over HK$50 billion to integrate SUNART RETAIL’s extensive offline network with its digital ecosystem. However, the "honeymoon phase" quickly soured.
From fiscal 2022 (ending March 31, 2022) to fiscal 2024 (ending March 31, 2024), SUNART RETAIL’s performance deteriorated amid unfavorable external conditions and unmet synergy expectations. Revenue shrank to RMB 72.567 billion, cumulative net losses reached RMB 2.235 billion, and debt ratio climbed to 64.1%. By fiscal 2024-end, its stock price had plunged 77.8% from its peak.
On January 1, 2025, Alibaba announced divesting SUNART RETAIL as a "non-core asset." It sold its 78.7% stake to DCP Capital for up to RMB 13.138 billion. The final deal, completed on February 27, saw DCP acquire 7.508 billion shares for HK$10.361 billion. Excluding Alibaba’s seven-year investments, the project incurred a paper loss exceeding HK$40 billion.
Unlike Alibaba’s strategic approach, DCP, as a private equity firm, typically acquires listed companies for asset appreciation or platform transformation. Its post-acquisition moves suggest the former goal.
DCP overhauled SUNART RETAIL’s leadership, with founder Huang Mingduan stepping down and DCP founding partner Hua Yuneng taking over as chairman. Alibaba-affiliated directors Qin Yuehong and Han Liu resigned, replaced by DCP’s consumer retail investment head Wang Guannan and VP Mei Mengxue. Notably, new board members waived director fees and committed to three-year terms.
Structurally, DCP reorganized SUNART RETAIL’s regions from six to four (East, North, Northeast, and South China), pivoted toward smaller warehouses, separated procurement and operations, and built an in-house brand R&D system to transform into a "buying-and-research-driven quality retail brand" akin to Hema, Costco, or Sam’s Club.
**Turnaround Proves Fleeting: Same-Store Sales and Average Spend Decline in H1 FY2026** Despite ambitious plans, tangible improvements remain elusive.
FY2025 (ending March 31, 2025) saw revenue dip 1.4% to RMB 71.552 billion, while adjusted net profit rebounded to RMB 405 million from a RMB 1.605 billion loss in FY2024. Same-store sales grew 0.6%, marking the first positive growth since 2014.
However, the turnaround largely stemmed from cost-cutting via store closures. Eight hypermarkets were shuttered (one converted to an M Membership store), reducing sales/marketing expenses by 16.2% and administrative costs by 24.1%.
In H1 FY2026, SUNART RETAIL closed six hypermarkets and one midsize supermarket, cutting net selling area by 119,700 sqm. Revenue fell 12.1% to RMB 30.502 billion, with merchandise sales down RMB 4.105 billion YoY. Adjusted net loss resumed at RMB -123 million, same-store sales plummeted 11.7%, and average spend declined.
Long-term challenges persist. Store upgrades and supply chain reforms require sustained heavy investment, but volatile profitability strains cash flow. From FY2022 to FY2025, cash reserves dwindled from RMB 11.294 billion to RMB 6.798 billion. Though H1 FY2026 operating cash flow hit RMB 1.323 billion, most came from accounting adjustments (e.g., depreciation), leaving limited discretionary liquidity.
New initiatives—membership programs, private labels, and instant retail—remain nascent. Membership fees contributed just RMB 18 million (0.06% of revenue), implying ~70,000 paid members—far below Hema’s 3 million (2022 data) or Sam’s China’s 9 million. Private brands accounted for under 3% of sales, versus 35% at Hema, 32% at Costco, and 25% at Sam’s. Pilot warehouses in five cities average daily sales of RMB 50,000, lagging rivals like Meituan’s Xiaoxiang (RMB 150,000–300,000).
With weak self-sustaining capacity and unclear growth drivers, SUNART RETAIL needs continued funding from DCP. Yet, PE funds typically exit within five years, leaving DCP limited time to turn the business around.
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