Core views
FY24H1's revenue also increased by 34.4%. Thanks to the development of sub-accounts such as Douyin Beautiful Life and the development of multiple platforms such as Taobao and Oriental Selection App, the total GMV of the entire FY24H1 Oriental Selection platform was 5.7 billion yuan/ +18.8%. FY24H1's adjusted net profit was 509 million yuan/ -15.4%, corresponding to the adjusted GMV profit margin of 8.9% /-3.6pct (FY23 and FY23H2 was 10.9% and 9.4%), mainly due to increased marketing expenses, increased discounts on self-operated products (e-commerce business gross margin 32.9% /-9.6pct), and the impact of options promotion.
Looking ahead, it is expected that: 1) FY24H1 has increased its self-operated product promotion efforts, and Dong Yuhui's “Walk with Hui” Douyin live broadcast has had outstanding delivery performance since January 9, '24, which is expected to support revenue growth; 2) It is expected that the increase in self-operated product discounts starting in December may drag down FY24Q3 profit margins, and the “Walk with Hui” Douyin live broadcast room is expected to contribute to increased performance. 3) In the medium to long term, the APP membership system is expected to deepen the self-operated product strategy, focusing on the dual engine of traffic and products.
occurrences
The company announced FY24H1 interim results (financial reporting period is 2023/6/1-2023/11/30):
FY24H1 had revenue of RMB 2,795 million/+34.4%, net profit of RMB 249 million/-57.4%, and adjusted net profit of RMB 509 million/-15.4%. FY24H1's paid GMV on Douyin and other channels is 5.7 billion yuan, the number of Douyin followers is 45.8 million, and the number of orders paid on Douyin is 596,000.
Brief review
Live e-commerce helped increase revenue by 34.4%, and increased cost investment+self-operated product discounts under business expansion affected performance. FY24H1's revenue was 2.95 billion yuan/ +34.4%, mainly due to the steady growth of the live e-commerce business. Among them, revenue from proprietary products and e-commerce live streaming business was 2.41 billion yuan/ +36.5%, accounting for 86.2% /+1.3 pct of revenue, university education revenue of 366 million yuan/ +23.9%, and revenue of institutional customers 18 million yuan/ -6.2%.
FY24H1's net profit was 249 million yuan/ -57.4%, and the adjusted net profit was 509 million yuan/ -15.4%, mainly due to: 1) increased market investment costs, of which FY24H1 marketing expenses were 550 million yuan/ +145.6% (corresponding sales expenses increased from 11% to 20% of FY23H1), mainly an increase in self-operated business and live streaming talent; 2) the increase in stock option expenses, with FY24H1 corresponding to about 246 million yuan.
Driven by the development of multiple platforms such as Douyin and APP, GMV was 5.7 billion yuan/ +18.8%, and paid app membership was officially launched in October '23. The total GMV of the FY24H1 Dongfang Selection platform was 5.7 billion yuan/ +18.8%, of which: 1) Douyin Live: According to Grizzly Piglet data, the GMV of the FY24H1 Oriental Selection Matrix account is 4.5 billion yuan/ -9.2%. It is estimated that Douyin GMV accounts for about 79% of the total GMV, and still accounts for the main proportion. The decline in the GMV of the Douyin live broadcast room is mainly due to the high base of FY23H1. Among them, the Beautiful Life Douyin live streaming account FY24H1GMV, which began broadcasting in July 23, reached 1.32 billion yuan/ +100% +, accounting for nearly 30%, making it an important GMV increase. 2) Oriental Selection App: In October '23, the Oriental Selection App paid membership was launched. The membership fee is 199 yuan/year. The main benefits include: 88% off on 100 self-operated products and discounts on other discounted member-priced products, a monthly member-only coupon, and a 66 yuan limited-time membership voucher package. According to the company's performance report, up to now, the number of app registrants is 3.6 million, the number of paid members is about 200,000, and the monthly cost of paid members is about 800 yuan per month. The membership system helps private domain conversion and increase the repurchase rate.
Proprietary products are being promoted at an accelerated pace, FY24H1 contributes nearly one-third of GMV, and the adjusted GMV profit margin has declined. The new “Walk with Hui” account is expected to contribute to incremental performance. The company continues to increase the number of self-operated SKUs. As of November 23, the number of self-operated SKUs exceeded 264, and self-operated products contributed about 1.9 billion yuan in revenue and are expected to increase by 90% +, corresponding to about one-third of GMV. With the increase in the share of proprietary products, the gross margin of FY24H1's live e-commerce was 32.9% /-9.6pct, and the adjusted net profit of FY24H1 was 509 million yuan, corresponding to the adjusted GMV profit margin of 8.9% /-3.6pct (FY23 and FY23H2 were 10.9% and 9.4%, respectively). Looking ahead to FY24H2 (corresponding to 231201-240531), on the one hand, the company's GMV has performed well since December 23 (not including Huixing, the Douyin channel's GMV of about 1.08 billion yuan/ +37%, 980 million yuan/ +13%), and Dong Yuhui's “Walk with Hui” Douyin live broadcast room (Dongfang Selection's wholly-owned subsidiary) has been outstanding since the standalone live broadcast began on January 9, 24, 24, 24, 24, 2014 (GMV). (GMV4300 10,000 yuan), accounting for nearly half of the total GMV in January; on the other hand, it is expected that the increase in self-operated product discounts starting in December may drag down FY24Q3 profit margins, while the “Walk with Hui” Douyin live broadcast room brought by a third party is expected to contribute to increased performance.
The divestment of the education business focused on the main e-commerce business, and the increased shareholding of the group and directors showed confidence in development. In November 2023, the company announced that it plans to sell its education business to the controlling shareholder New Oriental at a consideration of 1.5 billion yuan. The FY2023 education business revenue is 630 million yuan/net profit after tax of 121 million yuan (corresponding profit margin is 19.1%). Furthermore, according to the joint announcement issued by Oriental Selection and New Oriental on January 31, 2024, Oriental Selection Board and New Oriental Board of Directors have each approved the termination of the early subscription agreement, and New Oriental and Yu Minhong promised to purchase a total of HK$700 million worth of Oriental Selection shares on the Stock Exchange at market price. Among them, New Oriental has promised to purchase Oriental Selection shares with a total value of HK$660 million, which will be held by New Oriental Benefit after purchase; Yu Minhong has promised to buy Oriental Selection shares with a total value of HK$40 million. Beneficial holdings of Minhong or a corporation controlled by him, the purchase Stock actions will be carried out gradually over a period of 6 to 12 months from the date of announcement.
Investment suggestions: Based on the gradual development results of the company's multi-platform development (Oriental Selection App, Taobao Live Streaming, etc.) and the company's increased investment in promotion and marketing expenses for its own products, increase GMV and revenue, and reduce net profit. 1) It is estimated that the GMV of all platforms under the company (including Douyin Live, Taobao Live, Oriental Selection App, etc.) will reach 137, 154, and 16.2 billion yuan (originally 127, 145, 15.8 billion yuan) in the FY24-26 fiscal year, corresponding to the average daily GMV of 3,900, 44,46 million yuan for the FY24-26 fiscal year, respectively. 2) FY24-FY26's revenue is expected to be 60.8, 62.5, and 6.81 billion yuan (previously 5.58, 65.3, 7.61 billion yuan), up 34.8%, and 9.0%. Corresponding to FY24-FY26's e-commerce live streaming business revenue growth rate of 39.2%, 15.7%, and 9.0% (due to the company's sale of education business, education business is not included from FY25); 3) The adjusted net profit of FY24-FY26 (excluding equity incentives, etc.) is 10.61, 11.92, 12.88 100 million yuan (originally 1,290, 14.44 billion yuan, 1,620 billion yuan), -2.6%, +12.3%, and +8.1% compared to the same period last year. Corresponding PE was 21, 19, and 17X, maintaining the “buy” rating.
Risk warning:
1) Risk of losing the anchor team: The Dongfang Select e-commerce live streaming business under the company is an emerging business. Currently, it has dozens of anchors, and many leading anchors have leading numbers of fans. If there is a loss of leading anchors or the loss of the anchor team, it may adversely affect the company's normal live streaming operations;
2) Risk of supply chain management capabilities falling short of expectations: The company is launching Oriental Select's own products to improve and control supply chain links such as product selection, operation, and transportation. If specific product quality control or problems occur in supply chain links such as transportation and logistics, it may adversely affect the company's product brand.