Revenue in '22, net profit of the mother was +36%, -45% year on year, +5% compared to 23Q1, and -18%. One Network One Innovation published its 2022 annual report and the first quarter of 2023. The company's service brand GMV in '22 totaled 26.485 billion yuan, a year-on-year decline of 2.27%. The company achieved operating income of 1,539 million yuan in 2022, an increase of 35.55% over the previous year, net profit of 180 million yuan, a year-on-year decrease of 44.90%, after deducting non-net profit of 148 million yuan, a year-on-year decrease of 42.73%, EPS was 0.76 yuan, and it is proposed to pay 0.15 yuan per share (tax included).

The rapid increase in the company's revenue in '22 was mainly due to the revenue growth contribution of new customers from brand online marketing services and online distribution, as well as the revenue growth contribution of e-commerce business with new business types of content; the year-on-year decline on the profit side was mainly due to a decrease in gross margin and an increase in cost rates.

On a quarterly basis, the revenue of 22Q1 to 22Q4 companies increased 19.58%, 38.82%, 57.69%, and 28.96%, respectively, while the net profit of the parent company declined by 2.38%, 27.63%, 45.58%, and 73.11%, respectively. In 23Q1, the company's service brand GMV increased nearly 6% year on year, achieving revenue of 279 million yuan, an increase of 4.60% year on year, and Guimu's net profit was 42.61 million yuan, down 17.86% year on year.

Online marketing/online management/online distribution/content e-commerce revenue was +145%/-16%/+36%/+226% by business: in '22, brand online marketing services, online distribution, and content e-commerce service revenue accounted for 36% of total revenue (+16PCT year-on-year), 33% (-20PCT), 23% (basically flat), 7% (+4PCT), and 7% (+4PCT), revenue was +144.77%, -15.80%, +35.67%, +226.35%, respectively. The rapid growth in service and online distribution revenue was mainly due to the contribution of new customers added in '22. The rapid growth rate of content e-commerce was mainly due to the new business added in the second half of '21, and the lower base for the same period last year.

By platform, Tmall Mall accounts for a relatively large share of sales. The sales model is branded online marketing services. Revenue accounted for 39% of total revenue in '22 (25PCT increase over the previous year), and revenue increased 187.98% year-on-year; Vipshop's revenue in '22 accounted for 9%, and revenue fell 6.61% year on year.

GMV level: By platform, Tmall's overall GMV is basically flat. Pinduoduo's GMV is growing fast, and Vipshop will show a certain decline; by category, GMV for personal care and health care products is growing rapidly, GMV for food, mother and child is growing steadily, GMV in the beauty category is basically flat, and GMV for home appliances and trendy toys is on a downward trend; by customer, the total GMV of stock brands has declined to a certain extent, but the new brand GMV has made up for it.

Gross margin declined, expense ratio increased, inventory increased, and operating cash flow was the net outflow gross profit margin: gross margin fell 14.02 PCT to 33.59% year-on-year in '22. The decline in gross margin was mainly due to: 1) In terms of business structure, the share of brand management service revenue with high gross margin declined, and the share of brand marketing service revenue with low gross margin increased; 2) As market competition intensified, investment costs rose for cross-border businesses such as Tmall and Jingdong; 4) Investment in new brands was large, and many projects were still in the early stages of investment. Not reflected yet Normal gross margin level. By business, the gross margins of brand online marketing, brand online management, and online distribution were 31.94% (-12.92PCT), 48.13% (-10.57PCT), and 16.22% (-11.97PCT), respectively. On a quarterly basis, gross margin for the single quarter from 22Q1 to 23Q1 fell 4.44, 13.49, 18.45, 16.02, and 9.82 PCT, respectively.

Expense rate for the period: The cost rate for the 22-year period increased 1.27PCT to 15.67% year-on-year. Among them, the sales, management, R&D, and financial expenses rates were 10.49% (+2.95PCT), 5.29% (-1.91PCT), 2.10% (-0.05PCT), and -2.20% (+0.28PCT), respectively. The year-on-year increase in sales expenses was mainly due to the increase in partner brands in '22, the increase in revenue from marketing and distribution businesses, and the increase in promotion expenses and employee remuneration. The cost rate for the 23Q1 period increased 1.77PCT year-on-year. Among them, the sales, management, R&D, and financial expenses ratios were +2.81, +0.19, -2.70, and +1.47PCT, respectively.

Other indicators: 1) Inventory at the end of '22 increased 68.59% to 305 million yuan compared to the beginning of '22, and the end of March '23 decreased 3.22% from the beginning of '23; the number of inventory turnover days in '22 and 23Q1 were 86 days and 148 days respectively, up 5 days and 6 days from the previous year.

2) Accounts receivable at the end of '22 increased 3.66% to $326 million compared to the beginning of '22, and the end of March '23 decreased by 19.60% from the beginning of '23; the number of accounts receivable turnover days in '22 and 23Q1 was 75 days and 95 days respectively, a decrease of 7 days and 10 days from the previous year.

3) Net operating cash flow was 34.55 million yuan in 22, which was converted to a net outflow from the previous year, mainly due to additional distribution and distribution business and increased inventory; net operating cash flow in 23Q1 was 3.07 million yuan, which was converted to net inflow over the previous year, mainly due to the company strengthening the management of accounts receivable and other accounts receivable.

The number of newly developed brands increased in '22, and used global e-commerce and new consumer goods accelerators as a two-wheel drive in '23. The company added 42 brands including Mentholayton, Vita Tea/Milk, Old Street Coffee, Cold Sour Ling, Zhongjie, Stokke, and Xinji Makeup on the basis of ensuring basic stability for core customers. Against the backdrop of a slowdown in the growth rate of shelf e-commerce, the company is developing general agency business. Brands such as Avance, Ecortin, and Ripple Qin have now entered a period of steady and rapid growth, adding general agency businesses such as Hairmax and Xinji Makeup in '22. The 23Q1 company continued to add 12 brands including C&D Group (4 brands), Swisse, Luanze, G&G, and Comfort.

Looking ahead to '23, the company will rely on “e-commerce global service providers and new consumer goods brand accelerators” to actively expand global general agency business performance, continue to deepen partnerships with old brands, and accelerate the expansion of new brands. At the same time, shelf e-commerce platforms will seize development opportunities in the low penetration category.

Lower profit forecasts and maintain the “increase in holdings” rating

Considering that new brand customers are still in the early investment stage, and there is still uncertainty about the overall demand side recovery, we lowered the company's 23-24 profit forecast (the net profit returned to the mother was 41%/48% lower from the previous profit forecast, respectively), corresponding to the EPS for 23-24 was 0.97 and 1.17 yuan respectively. The corresponding 25-year EPS forecast was 1.33 yuan, and the 23-year PE was 31 times and 26 times, respectively, maintaining the “increase” rating.

Risk warning: customer/category/platform expansion falls short of expectations; brands withdraw online agency operation authorization; e-commerce event sales fall short of expectations.