The company released its 2022 annual report and the first quarter of 2023:

In 2022, the company achieved operating income of 1,539 million yuan/ +35.55%, net profit of 180 million yuan/ -44.90%, and net profit of 148 million yuan/ -42.73% of non-return mother's net profit. 2023Q1, the company achieved operating income of 266 million yuan/ +4.60%, net profit of 43 million yuan/ -17.86%, and net profit of the non-return mother was 38 million yuan/ -25.18%. The increase in the company's revenue was mainly due to businesses such as brand online marketing services, new customers for online distribution, and e-commerce with new content; the decline in profit was mainly due to a decline in gross margin and increased investment in various expenses.

Changes in revenue structures, exchange rate fluctuations, and upfront investment in new businesses have led to a sharp decline in gross margin.

(1) In 2022, the company achieved a gross profit margin of 33.59%/-14.02%, mainly due to changes in revenue structure (decline in the share of brand management services, increase in the share of marketing services), rising cross-border procurement costs due to exchange rate fluctuations, and new brands in the general agency business in the early investment stage. The sales expenses ratio was 10.49% /+2.95pcts, mainly due to the large increase in employee remuneration and promotion expenses; the management/R&D/financial expenses ratio was 5.29%/2.10%/-2.20%, respectively, compared to -1.91 pcts/-0.05 pct/+0.28pct, respectively. The net interest rate is 11.70% /-17.09pcts.

(2) In 2023Q1, the company achieved a gross profit margin of 34.30% /-9.82pcts, and the sales/management/R&D/finance expense ratio was 13.88%/7.02%/1.52%/-2.46%, respectively, compared to +2.81 pcts/+0.19pct/-2.70pcts/+1.47pcts, respectively. Among them, management expenses were increased due to depreciation and amortization of the Internet Innovation Building. The net interest rate is 15.29% /-4.18pcts.

New brands contributed to an increase in revenue, with 23Q1GMV showing a slight increase.

Looking at the sales model, brand online service is still the company's main business. On the basis of ensuring the basic stability of core customers, 42 brands including Mentholatum, Leng Shanling, Zhongjie, and Xinji Makeup were added in 2022. The GMV of the service brand reached 26.485 billion yuan/ -2.27%; 2023Q1 added 12 brands including Swisse and Goshisha, achieving a cumulative GMV increase of nearly 6%. In 2022, brand online marketing and management services achieved revenue of 554 million yuan/+144.77% and 507 million yuan/ -15.80% respectively. Online distribution achieved revenue of 354 million yuan/+35.67%, and content e-commerce services achieved revenue of 109 million yuan/+226.35%.

Looking ahead to 2023, “e-commerce global service provider+new consumer brand accelerator” will drive two-wheel drive growth.

In terms of global e-commerce services, the company will continue to expand the general generation model, deepen cooperation with old brands and expand new brands, create popular products in segmented categories, and seize opportunities in low-penetration categories; in terms of new consumer brands, the company will explore more high-quality brands on the trend segmentation circuit to help startups grow. At the same time, the company will also continue to strengthen automation and systematic construction. According to the annual report, it plans to apply artificial intelligence related technology in 2023 to further improve the efficiency and accuracy of scenarios related to customer service, copywriting, design, and data.

Investment advice:

Buy-A investment rating. We expect the company to achieve revenue of 17.10/19.03/2,091 billion yuan in 2023-2025, +11.15%/+11.28%/+9.86% year on year, and net profit of 2.27/283/322 million yuan, +25.89%/+24.72%/+13.90% year on year. Give 40xPE in 2023, corresponding to the target price of 38.00 yuan for 6 months.

Risk warning: macroeconomic downturn risk, risk of increased industry competition, risk of platform policy changes, etc.