On August 17, Jihong Co. (002803.SZ/2603.HK) released its 2026 semi-annual report. The company, which started in paper packaging and has transformed into a leader in cross-border social e-commerce, delivered impressive results: first-half revenue was RMB3.736 billion, up 15.53% year on year; net profit attributable to the parent was RMB158 million, up 33.52%. More notably, net profit from its cross-border social e-commerce business rose 80.92% year on year, with a gross margin of 62.99%.

At a time when cross-border e-commerce generally faces rising traffic costs and narrowing margins, how did Jihong achieve profit growth far exceeding revenue growth?

01

What supports a 63% gross margin?

Jihong's cross-border e-commerce follows a typical "products find people" model: it runs targeted ads on Meta, TikTok, Google, Line, YouTube, and Instagram to push products directly to potential buyers, rather than relying on traditional shelf search. In shelf e-commerce, sellers are constrained by platform algorithms and price comparison systems; in social e-commerce, the advertiser controls both pacing and pricing.

But the model is only the starting point. What really brings costs down is AI.

Many sellers still see AI only for copywriting with ChatGPT or creating images with Midjourney. Jihong has spent nearly nine years proving that AI's value lies not in point improvements but in end-to-end restructuring.

Since 2017, Jihong has built its AI algorithms. Its self-developed Giikin system now holds data on over 610,000 SKUs and 58 million ad assets, serving over 80 million consumers worldwide. In June 2026, the company upgraded its "GiiKin" full-chain digital operations platform to "GiiKin AI+," an omnichannel intelligent operations platform.

According to the report, Jihong applies AI to almost every link: product selection, creative generation, copywriting and multilingual translation, precision recommendations, ad placement, customer service, and logistics. It integrates major models such as Google Gemini and Tongyi Qianwen, and partners with multiple cloud providers and AI vendors. In other words, AI is turned into concrete productivity tools embedded in every link.

The direct result: while cross-border social e-commerce revenue rose 15.82%, operating costs rose only 11.09%. Scale effects and efficiency gains accelerated profit growth.

If AI makes selling cheaper, inventory makes it stable. Jihong buys from suppliers only after receiving orders, keeps minimal stock for selected categories, and uses Giikin to connect supplier and logistics data. Inventory can hurt cross-border business as much as ad spending: one wrong SKU can erase months of profit. Light inventory brings faster cash turnover and lower deadstock risk.

Of course, light inventory demands faster supplier response and more stable logistics, increasing difficulty in quality control and delivery timing.

Finally, there is organizational structure. Jihong splits the front end into multiple teams, each independently handling product selection, ads, and creative generation. They compete under a profit-first "horse race" mechanism, supported by shared mid- and back-office resources. The value is not betting on a few hits with one team's judgment, but spreading risk through dozens of teams testing in parallel.

Thus, the 62.99% gross margin results from four layers: model, technology, inventory, and organization.

02

Cash flow is the real trump card

Of course, Jihong is not without concerns.

Revenue from its traditional packaging and printing business grew 15.04% year on year, but net profit fell 31.62%. The reasons: higher raw material prices, fiercer competition, and new production bases still ramping up. These three factors dragged profitability.

In first-half 2026, packaging gross margin was 17.41%, down 2.14 percentage points year on year.

Revenue growth does not equal profit growth. For supply chain and manufacturing sellers, capacity rollout pace and cost control often matter more than top-line numbers. Many sellers calculate how much they can sell when expanding capacity and inventory, but not how much extra it costs to sell.

What deserves more attention than net profit is net operating cash flow. During the reporting period, net operating cash flow was RMB302 million, up 65.60% year on year, far outpacing the 33.52% net profit growth. The order-first, purchase-later model turns orders into real cash rather than leaving them in receivables or inventory as numbers that look good but cannot be withdrawn.

No matter how pretty book profit is, if cash is stuck in inventory and payment cycles, any disruption can break cash flow.

Some other figures deserve attention. Selling expenses were RMB1.25 billion, which the company attributed to higher advertising spending along with higher cross-border e-commerce revenue. Advertising spending was RMB1.189 billion, up from RMB1.063 billion a year earlier. Against e-commerce revenue of RMB2.451 billion, advertising is approaching half of revenue.

Cross-border e-commerce competition is shifting from traffic dividends to efficiency dividends. Companies that deeply embed AI across the entire chain and use data-driven decisions may gradually widen their lead.

With its full-chain AI deployment, Jihong has gained entry to the efficiency dividend of cross-border e-commerce.

This article is for analysis only and does not constitute investment advice.