Revenue growth in 2023 was lower than expected due to business adjustments, and profit was 9% lower than expected. Annual revenue of 82.4 billion yuan (RMB, same below), compared with our agreed expectations of 90 billion yuan and Bloomberg, was basically the same as the previous year. Among them, the trading business remained flat, and the service business fell 18%. The gross profit margin was 3.3%, which was basically the same as the previous year. The gross margin of most trading sub-categories increased, but this was offset by revenue restructuring (increase in the share of consumer electronics with lower gross profit). The adjusted net profit returned to mother was 450 million yuan, an increase of 10% over the previous year.

2023 performance highlights: 1) Trading business: Although the industry is scattered, revenue from most categories other than electricity consumption is under pressure. Electricity consumption (+19%) boosts sector revenue and deepens cooperation with leading brands (Apple, Lenovo, etc.); agricultural and agricultural machinery (-22%) upstream price fluctuations, household appliances (-11%) /home (-6.3%) are weak due to industry cycles and real estate markets, transportation (-6.5%) shrinks the low-margin parts business, focuses on new energy vehicles, and alcohol (-32%) adjusts the product structure due to the decline in liquor production and sales. In terms of gross margin, due to the increase in the share of electricity consumption revenue, although the gross margin of other categories increased, the overall gross margin remained flat year over year. The company continued to optimize its customer structure and shrink its channel business, and member stores increased their share of revenue to nearly 40% (+10 percentage points). 2) Service business: SaaS+ subscription services increased low-cost packages and lowered the payment conversion threshold for member stores, leading to a year-on-year decline in ARPU. It is expected that future subscription service revenue will continue to grow by about 10%.

2024 outlook: Affected by business adjustments, we expect revenue to grow at a single-digit year-on-year rate in 2024 (previously low double digits). The growth rate of electricity consumption is expected to drop significantly, and alcohol consumption will continue to decline due to liquor consumption and household restructuring. It is expected that the company's streamlining of low-health businesses will affect revenue growth, and profits will maintain steady growth, but the profit growth rate has been reduced to about 30% compared to the previous 30-50% forecast. We cut 2024 revenue/profit by 17%/18%, and expect the company's revenue/profit to increase by 4%/30% in 2024. The company's channel business has shrunk, and the share of member store revenue has increased by 10 percentage points to ~ 40%, which is expected to improve long-term business health. The benefits brought by supply chain capacity are already reflected in current financial forecasts. Based on the unchanged price-earnings ratio of 25 times 2024 (compound profit growth rate of 25% in 2023-2025), the target price was lowered from HK$38 to HK$30. The current price already reflects short-term business growth potential and was lowered to a neutral rating.