Event: the company released its annual performance report in 2022. In 2022, the company achieved operating income of 695 million yuan,-23.15% compared with the same period last year, and net profit of 23.632 million yuan,-74.45% compared with the same period last year. Among them, 2022H2, the company achieved operating income of 522 million yuan, year-on-year + 0.61%; return to the mother net profit of 32.128 million yuan, year-on-year-43.62%. The performance improved significantly in the second half of the year compared with the previous year.

The epidemic in 2022 disturbed the company's business and improved significantly in the second half of the year. In 2022, the company's experiential marketing sector achieved revenue of 514 million yuan / year-on-year-25.09%, accounting for 73.96%, of which 2022H2 realized revenue of 406 million yuan / year-on-year-0.82%; digital marketing and promotion services realized revenue of 154 million yuan / year-on-year-23.45%, accounting for 22.22%, of which 2022H2 realized revenue of 8925.4 yuan / year-on-year-13.34% IP expansion realized revenue of 2653.1 yuan / year-on-year + 62.32%, of which 2022H2 realized revenue of 2652.7 yuan / year-on-year + 323.96%. On the whole, the epidemic situation of the company was significantly disturbed in the first half of the year, and each business segment improved significantly in the second half of the year: 1) experiential marketing business: it was mainly affected by epidemic prevention and control in China and Hong Kong in the first half of the year, but recovered rapidly in the second half of the year. 2) Digital marketing business: the epidemic accelerates the online process of domestic business. In 2022, the company provides daily public relations maintenance services for many brands such as BOBBIBROWN, and organizes a number of digital marketing activities, such as Remy Martin XO online social activities. In addition, the company strategically invested in Fast Technology and established a joint venture company to build meta-universe marketing, reached a deep cooperation with Baidu, Inc. Netcom Technology Company to design D Universe design meta-universe, settled in Baidu, Inc. hustle and bustle platform, 3) IP expansion business: the company signed an agreement in 2022, responsible for promoting and operating Shanghai Design week IP, and held the first event in the second half of the year-2022 World Design Capital Congress and a series of projects, contributing 20 million level income. But La Liga clubs and Tour de France have been delayed.

Under the income disturbance, profitability is under some pressure. During the reporting period, the company's gross profit margin was from-0.46pct to 29.11%, mainly due to the adjustment of product structure. The rate of sales expenses increased from + 2.94pct to 12.44% compared with the same period last year, mainly due to the relative rigidity of labor costs under income pressure and the increase in the base of social security contributions. The rate of management expenses is from + 4.74pct to 9.46% compared with the same period last year, of which the company produces an equity incentive of 18.5 million yuan. After deducting equity incentive fees, the rate of management expenses is from + 2.08pct to 6.79%. Overall, the company achieved a net profit of 2363.2 million yuan / year-on-year-74.45% in 2022, mainly due to the suspension of domestic operations and equity incentive fees in the first half of the year.

The business recovery trend is upward in 2023, and the increment of IP business is expected. In 2023, with the convergence of the epidemic disturbance, the company has obtained a number of marketing service projects from global and local customers in the mainland and Hong Kong, and the company's business sectors have returned to the upward trend: 1) from the perspective of experiential marketing, the major luxury groups are expected to strengthen their investment in domestic activities on a month-on-month basis, and the company currently has access to a number of marketing services for global and local customers. In addition, Fulang Group, which is invested by the company, will be listed in 2022, and the company will expand experiential marketing activities for all its brands to promote performance growth. 2) in the digital marketing section, with the increase of online marketing budget for luxury brands, the company continues to seize opportunities; at the same time, cooperation with Fast Technology and Baidu, Inc. is expected to develop new performance growth points. 3) from the perspective of IP business, it is expected to contribute more in 2023: Shanghai Design week has already made a contribution in 2022, and the company expects to rehost the Tour de France and La Liga Club events postponed in 2022, with growth expected in 2023.

Investment advice: in the long run, the domestic market and domestic brands of top international brands are emerging as a long-term trend, and the company will benefit as a pan-fashion data interactive marketing group that establishes a long-term cooperative relationship with top brands. The company's team is experienced, the customer base is solid, and the advantages of online and offline full integration are highlighted; its extravagant experience marketing business has advantages over its peers, and with the accumulation of original brands and personnel, it conforms to the trend of marketing on-line, diversification, all-channel integration and continuous increase; and constantly excavates new business growth points such as Metasmology and new IP, which is expected to enable business closed loop. The epidemic disturbance is under pressure in 2022, and we expect the company to achieve a net profit of 1.15 million yuan in 2023-2025, which is + 387.9%, 22.0% and 15.8% respectively, compared with the same period last year. Maintain the target price of HK $2.8 and maintain the "buy" rating.

Risk tips: customer loss due to irresistible factors; repeated epidemic situation, hindering the development of offline activities; industry competition intensified.