2024H1 revenue also increased 34%, and adjusted net profit decreased 15% year over year. With FY2024H1, the company achieved revenue of 2,795 billion yuan/ +34.38%. Specifically, the live e-commerce business revenue was 2,411 billion yuan/ +36.56%, accounting for 86.3% /+1.4pct. The revenue from the self-operated products business during the period was about 1.9 billion yuan, accounting for about 78.8%. GMV during the period was 5.7 billion yuan/ +18.75%; net profit attributable to mother was 249 million yuan/ -57.44%; if equity incentive expenses (246 million yuan) were excluded, adjusted net profit was 509 million yuan, a year-on-year decrease of 15.39%.

The revenue structure changed and cost investment increased, and profit margins declined marginally. 2024H1 has an overall gross profit margin of 39.1% /-8.1pct. Specifically, the gross profit margin of e-commerce business is 32.9% /-9.6pct, the gross profit margin of university education is 77.6% /+3.9pct, and the gross profit margin of institutional customers is 88.8% /+9.6pct. The increase in revenue share of proprietary products also led to an overall decline in gross margin. The sales and marketing expenses ratio is 20.0% /+9.1pct, due to the increase in the cost of live streaming staff. The management expense ratio is 5.1% /+2.1pct, mainly due to the increase in equity incentive expenses. The net interest rate was 8.92% /-19.2pct. The combination of revenue restructuring and increased expenditure led to a marginal decline in profit margins.

Divestment the education business & increase it to the controlling shareholder, and focus on the main e-commerce business. On November 22, 2023, the company announced that it plans to sell its education business to the controlling shareholder New Oriental for 1.5 billion yuan. The business mainly includes online education for college students and institutional business. The education business achieved revenue of 630 million yuan/net profit after tax of 121 million yuan (profit margin of 19.1%) in FY2023. On the 24th of the same month, New Oriental, the controlling shareholder, plans to subscribe for 51.35 million new shares of the company for RMB 1.5 billion (accounting for 5.06% of the issued shares, corresponding to HK$31.75 per share). The subscription price will have a 5.9%/7.1% premium over the average closing price of the last 5/10 trading days. If the transaction is completed, New Oriental's shareholding ratio will reach 57.08%. After the fixed increase is completed, the company's cash on hand will be further enriched, and in the future, it will focus on the main e-commerce business.

The proprietary product strategy continues to be deepened, and the data of Huei's peers is impressive. The company continues to deepen its self-operated product strategy. The number of self-operated SKUs is expected to reach 400 by the end of 2024. The future self-operated product strategy will help the company better control channel costs, thereby providing consumers with more cost-effective products. In addition, Dong Yuhui, the company's star anchor, opened a new “Walk with Hui” account (a wholly-owned subsidiary of the company). According to data from Mama Chan, the total GMV of “Walking with Hui” from 1/9 to 1/24 reached 630,000 yuan, accounting for 58%, with an average daily GMV of about 45.93 million. The establishment of an account with Huihui, on the one hand, can fully unleash Dong Yuhui's business initiative; on the other hand, it is also the company's active experiment on the path of “going to Dong Yuhuihua.”

Risk warning: GMV's growth falls short of expectations, loss of core talent, product quality risks, industry policies, etc. Investment suggestions: Looking forward to the future, the continued deepening of its own business strategy and the new contribution of “Walking with Hui”, we analyze that the company's revenue is expected to maintain relatively rapid growth. At the same time, considering that the company is still investing more in apps, new platform exploration, supply chains, and talent reserves, we analyzed that the pace of profit margin expansion due to revenue growth will be delayed. Based on the above judgment, we expect the adjusted net profit for FY2024-2026 to be RMB 10.1/11.7/1.33 billion yuan (originally forecast to be RMB 12.1/1.45 billion for 24-25), and the corresponding PE valuation is 22/19/17x, maintaining the company's purchase rating.