Core views:
Oriental Selection released FY2024H1 (corresponding to June 23 to November 23 of the natural year) results:
FY24H1 achieved total revenue of 2,795 billion yuan, an increase of 34.4% year on year. Among them, e-commerce revenue from proprietary products and live streaming increased 36.6% year over year to 24.1 billion yuan. The development of self-operated products and the upgrading of consumer services further enhanced brand awareness. FY24H1 net profit was 249 million yuan, down 57.4% year on year; adjusted profit was 509 million yuan, down 15.4% year on year; gross margin fell 8.1 pct year on year to 39.1%, of which the gross margin of the live e-commerce business fell 9.6 pct to 32.9% year on year.
Three fees increased year-on-year, mainly due to increased employee costs and increased equity incentive expenses due to the recruitment of more talents in the live e-commerce business.
Oriental Selection's branding continues to advance, developing along the dual-engine flow & product route. During the reporting period, Dongfang selected GMV of 5.7 billion yuan (4.8 billion yuan in the same period last year), mostly from Douyin. According to Xindiao data, the Oriental Selection Matrix account's GMV was 4.3 billion yuan during the reporting period, and it is estimated that GMV from Douyin accounted for about 75% + of the total GMV. Proprietary products continued to expand their SKUs. The number of proprietary products exceeded 264 during the reporting period, and contributed about 1.9 billion yuan in revenue. Dong Yuhui opened a new “Walk with Hui” account and has outstanding drainage and delivery capabilities. From 1/9 to 1/23, the GMV of “Walking with Hui” was 630 million yuan, contributing about half of the GMV of the January Oriental Selection Matrix account. “Walk with Hui” and Dongfang Select Brand Matrix accounts are independent of each other. On the one hand, the Oriental Choice brand is “depersonalized”, and on the other hand, it is also expected to expand and channel the company's new cultural tourism business in the future.
Profit forecasting and investment advice. The company's estimated revenue for the 24-25 fiscal year was 63.7/6.64 billion yuan, with adjusted net profit of 1,06/1.12 billion yuan. Using the segmented valuation method, the education business was 20X PE in FY24; considering the strength of the live e-commerce traffic & product dual-engine in FY24, which brought about a large increase with Hui and launched a membership system, and maintained 35X PE in FY24; a reasonable total value of 35.08 billion yuan (HK$38.13 billion), corresponding to a reasonable value of HK$37.51 per share, maintaining a “buy” rating.
Risk warning. (1) Increased competition in the industry; (2) stricter regulation of live e-commerce; (3) food safety and other related risks.