1H21 performance is lower than expected

The company's 1H21 revenue was 1.66 billion yuan, an increase of 2.1% over the same period last year; the net profit returned to its mother was 246 million yuan, down 42.9% from the same period last year, and the performance was lower than we expected, mainly due to the decline in BABA channel revenue that exceeded expectations.

The company's headquarter 1H21 income was 320 million yuan, down 35.5% from the same period last year, of which the total income from brand integrated services and dealers' brand authorization was 280 million yuan, down 37.5% from the same period last year. GMV19.1 billion yuan, an increase of 33% 6%, of which BABA, Pinduoduo, JD.com and Vipshop Holdings Limited GMV were year-on-year + 3.70%, 116%, 39%, 41%, accounting for 48%, 60%, 30%, 15%, 5%, respectively, of which GMVs were + 3.70%, 116%, 41%, and 48%, respectively. Douyin & Kuaishou Technology platform GMV increased by 420 million yuan, accounting for 2.2%. In the second quarter alone, GMV increased by 15% to 10 billion yuan compared with the same period last year. We estimate that the 2021 monetization rate decreased to 1.47% compared with the same period last year. The decrease in monetization rate is mainly due to the company's adjustment of BABA channel revenue target to reduce customer trademark inventory pressure, resulting in a decline in BABA channel revenue.

The revenue of time interconnected 1H21 was 1.34 billion yuan, up 18% from the same period last year, and the net profit from home was 51.83 million yuan, up 2% from the same period last year. In the first half of the year, the Internet Division focused on increasing the layout of short video marketing business, and obtained the core agent of Kuaishou Technology KA.

1H21 gross profit margin decreased by 10.1ppt to 22.8% compared with the same period last year. We believe that it is mainly due to the decrease in the proportion of authorized business income with high gross profit margin, and the decline in BABA channel income affecting sales and management expense rates respectively compared with the same period last year. This is mainly related to the increase in the initial investment of cross-border e-commerce and food business. The net profit margin decreased to 14.8%. Accounts receivable increased slightly compared with the same period last year, and operating cash outflow increased. 1H21 accounts receivable increased by 89% year-on-year, mainly due to new loans in small bags; operating cash flow outflow of 265 million yuan (25.82 million yuan in the same period last year), mainly due to the increase in prepayment scale caused by the new major customers of time interconnection, and the decrease in collection due to the decline in revenue from the authorized business of this department.

Development trend

Management said that 1H21 raised the charges for its brand integrated services business, with an average increase of more than 8%, but it is expected that some of its profits will be diluted in the future due to upfront investment in new projects such as new category expansion and cross-border e-commerce. At the same time, the company issued a five-year plan to achieve GMV of about 300 billion yuan within 5 years (retail end about 200 billion yuan, supply chain service side about 100 billion yuan), with a substantial increase in business income. Earnings forecast and valuation taking into account the slowdown in revenue growth in BABA channels and the company's new business plan to increase expenses, we cut our 2021 / 22 EPS forecast by 26% to 0.440.55 CNY. The current share price corresponds to 17 times 2021e/22e P / E in 2021 / 22, and remains neutral. The valuation is switched to 2022, and the target price is lowered by 39 to 9.81 CNY, corresponding to 18 times 2022 P / E, which has 8.5% upside space compared to the current stock price.

Risk

The operating rules of the e-commerce platform have changed, the growth of a single channel is not as expected, and the development of new business is not as expected.