1HFY24 revenue exceeded our expectations, and adjusted net profit to mother was slightly lower than our expectations
The company announced 1HFY24 results (fiscal year end date November 30): revenue of 2.80 billion yuan, +34% year over year, of which live e-commerce contributed revenue of 24.1 billion yuan, slightly exceeding our expectations, mainly due to sales sales exceeding expectations of self-operated products; adjusted net profit of 509 million yuan, corresponding profit margin of 18.2%, slightly lower than our previous expectations, mainly due to sales expenses exceeding expectations.
Development trends
Multi-channel contributions are a growth center, and the new account is expected to become a new engine. 1HFY24 University's business revenue was 366 million yuan, up 24% year on year; live streaming business revenue contributed 2.41 billion yuan, up 37% year on year. The company disclosed that during the performance period, it had already paid 5.7 billion yuan in GMV through all channels such as Douyin, Taobao and App, an increase of 19% over the previous year. We determined that the company's revenue growth rate was superior to that of GMV during the period mainly due to the increase in the share of self-operated products calculated in full. By channel, we estimate that Douyin and other channels contributed 79% and 21% respectively. Among them, the conversion rate and customer unit price of Douyin live streaming have increased, and the app repurchase rate continues to improve. The company's performance will be disclosed. Up to now, the number of app registrants is 3.6 million, there are about 200,000 paid members, and the monthly cost of paid members is about 800 yuan per person. We expect the “Walk with Hui” sub-account to be launched in early January 2024) is expected to become a new center of performance growth in the second half of the fiscal year; since its launch, we have counted more than 20 million viewers per day and an average daily GMV of over 40 million yuan.
Proprietary products continued to gain strength, and adjusted GMV profit margins stabilized month-on-month. 1HFY24's gross margin fell 8ppt to 39.1% year over year, with the gross margin of live e-commerce, university education, and institutional business respectively 33%/78%/89%. The decline in gross margin was mainly due to a high base during the same period last year, an increase in the share of proprietary products, and a decrease in the average commission rate after the increase in the unit price of consignment products. Despite this, we believe that with the upgrading of self-operated products and the improvement of the logistics system (as of November 2023, the number of self-operated SKUs has exceeded 264), the gross margin of 1hFY24 self-operated products may have increased by more than 2pT over the same period in terms of economies of scale. 1HFY24's adjusted net profit to mother was 509 million yuan, corresponding to a net profit margin of 18.2%. If we assume the steady state of the education business with an adjusted net interest rate of around 16%, we can estimate that FY23's adjusted GMV profit margin is about 8%, which is stabilizing from month to month. Looking ahead to 2HFY24, considering the company's impressive GMV performance in December 2023 (GMV on the Douyin channel +39% year over year) and the potential contribution of “Walking with Hui” (mainly high-margin consignment products), we believe that the company's adjusted GMV net profit margin or month-on-month stabilization will drive the adjusted net profit margin to achieve a steady increase in adjusted net profit.
Profit forecasting and valuation
Keep FY24/25 revenue and profit forecasts unchanged. Maintaining an outperforming industry rating and target price of HK$36 (based on FY24e SOTP valuation, corresponding to 49 times FY24 price-earnings ratio, current stock price trading at 36 times price-earnings ratio), with 36% upside compared to the current stock price.
risks
GMV fluctuations; higher investment than expected; increased competition; live streaming regulatory risks.