We believe that the company's share incentive plan makes full use of the platform advantages of listed companies, has sufficient incentives (the scale accounts for 3% of the total number of shares), and better binds employees to the long-term growth of the company (ownership period of 3 years, with assessment goals). Under short-term GMV fluctuations, the company's stock price has been adjusted quite a bit, but we believe that the company is still Douyin's leading live broadcast, and continues to improve in various aspects such as content, channels, products, and supply chain. Operation and development are still on the right path. The future is expected to usher in rapid growth after stable traffic and refinement of all aspects. We are still optimistic about the company's branding development in the medium to long term.

Share incentives were introduced to grant core employees 3% of the total number of shares. On April 11, the company announced that 154 core executives and employees were granted 3,459 million shares (accounting for 3% of the total number of shares). Among them, Chairman of the Board Yu Minhong, CEO Sun Dongxu, and CFO Yin Qiang were granted 150/300/600,000 shares respectively, while the remaining 151 employees were granted 25.359 million shares (168,000 shares per capita). The market price of shares granted is HK$29, and the issue price at the time of vesting is 0 (employees do not need to spend money to buy shares). The vesting period is divided into 3 years, with 20%-50% ownership each year, and a certain assessment target is set.

Give full play to the advantages of listed companies and bind employees to grow together. As an e-commerce company that relies on content, talent is one of the company's most important assets and an important driving force for the company's performance growth. This incentive plan is the first large-scale stock incentive plan since the company transformed its e-commerce business. It covers 154 employees and has a long time period. It further strengthens the cohesion of the company's core team, strengthens the binding of core talents, and helps improve the stability and motivation of the team. At the same time, this incentive plan is also a reflection of the company's advantages as a platform for listed companies. Based on current prices, the current equity incentive scale exceeds HK$880 million, and the validity period can reach ten years. However, it is difficult for most industry participants to introduce similar long-term incentive plans to share long-term growth dividends with employees.

Under short-term fluctuations, stock prices have been adjusted greatly, and the direction of long-term corporate branding development has not changed. Since January, the company's live broadcast GMV data has fluctuated month-on-month. According to the Grey Pig data, 1/2/3 fell 16%/5%/9%, respectively. If you don't consider watching world accounts, they fell 22%/10%/2% month-on-month respectively. Under GMV fluctuations, the company's stock price also experienced major adjustments. We believe that fluctuations in GMV may be related to factors such as a decrease in the number of viewers of live broadcasts after the pandemic and the seasonality of fresh and food sales, while the company itself did not find any fundamental changes in the pace of development and operation, and it continues to move in the right direction. 1) Content innovation: Micro-innovation is carried out in the ongoing process of guest interviews and outdoor sessions, such as supply chain traceability, more diverse guest types, etc. 2) Channel improvement: Strengthening independent channel construction and improving the development of own app functions is expected to gradually increase investment and drainage in the future, and increase channel diversity and resilience to risks. 3) Proprietary product development: In addition to agricultural products and food, categories such as household chemicals and home textiles have been added to the categories. Strategically, it is also strengthening the development of popular products and deepening supply chain cooperation (investment in sausage factories, etc.). 4) Growth of Matrix accounts: Currently, there are 6 major Matrix accounts. Among them, the world account is still being gradually adjusted and improved. Currently, there are few live broadcasts, but the few live broadcasts that have been completed so far have shown a high level of single GMV (1/2/3 only looking at the broadcast date, with an average daily GMV of 7.27 million/15.86 million/6.47 million, respectively). The future has great potential with the improvement of team building and the arrival of the peak tourist season. Looking at the medium to long term, we believe that with the stabilization of the company's traffic side and the refinement of all aspects, the company's growth is expected to show rapidly, and there is still plenty of room for long-term branding development.

Risk factors: Focus on the impact of daily GMV fluctuations on short-term stock prices; the risk of policy changes in the live e-commerce and education industry; the risk of falling traffic or rising traffic costs in the live e-commerce business; the risk of loss of traffic due to loss of anchor teams; reputational risk due to product quality or quality control issues; risk of training business enrollment falling short of expectations, etc.

Profit forecasting, valuation and ratings: As Douyin's leading live broadcast, Dongfang Selection has strong growth potential and has shown outstanding results in various areas such as proprietary product ratio/matrix construction/team training/supply chain building. Based on the company's deepening competitiveness, excellent team ability, and management's long-term vision, we are optimistic about the long-term development prospects of Dongfang Selection's gradual scaling and branding. We maintain the company's core profit forecast for FY2023-25 of 89/12.2/1.66 billion yuan.