The pressure on online traffic led to a decline in the company's revenue and monthly activity in 2023, while paid penetration and single-user revenue increased markedly. The company is a leading online fitness platform. The company's revenue fell 3.3% in 2023, and its own brand products/ membership and online payments/ advertising changed by -17%/+11%/+9% year-on-year to 9.5/10.0/20 billion yuan respectively. The decline in consumer goods revenue was mainly due to the high base in 2022 and e-commerce traffic pressure after the 2023 epidemic control. The company's average monthly activity (MAU) in 2023 fell 18.2% to 29.76 million people. Driven by the company's significant growth in app services and content upgrades and virtual events, the membership payment penetration rate went from 10.0% It increased to 10.7%, and the average monthly income of monthly active users increased by 17.6%. Among them, revenue and MAU decreased by 3.9%/14.6% respectively in the second half of 2023, and the MAU decline was narrower than in the first half of the year.
The gross profit margin and expense ratio improved in 2023, and adjusted net profit and loss were significantly reduced. The company's gross profit margin in 2023 was 45.0%, up 4.3 percentage points year on year. Private brand products/membership and online payment/advertising changed by -0.4/+8.6/-15.1 percentage points year on year to 27.7%/62.8%/37.6%, respectively. The gross margin growth in membership and online payment services is clearly expected to be mainly driven by an increase in the average payment amount of members. At the same time, the company carried out personnel optimization and expense control. The total cost rate decreased by 9 percentage points. Among them, expenses related to contract performance, brand promotion, personnel, and R&D fell a lot. Combined with a slight increase in other income and interest income, the net profit loss in 2023 was 300 million yuan, a significant reduction compared to the loss of 670 million yuan in 2022. Among them, gross margin increased by 6 percentage points and expense ratio decreased by 13 percentage points in the second half of 2023. As a result, adjusted net profit for the second half of 2023 only lost 70 million yuan, with a significant decrease in losses over the same period last year.
Risk warning: weak macroeconomy; increased industry competition; continued decline in monthly activity; systemic risk.
Investment advice: The loss reduction trend is improving, and new outdoor categories are expected to drive consumer goods revenue and gross profit growth. Under the influence of online traffic pressure and weak consumption recovery in 2023, the company's revenue declined slightly, but the paid penetration rate and average income of monthly active users all increased markedly. Under good cost and cost control, the loss reduction trend is improving.
In 2023, the company began to expand outdoor equipment categories and course content. Under the boom in the outdoor industry, it is expected to drive an increase in consumer goods revenue and gross margin.
Due to the continued weak recovery of the industry in 2024 and the company's plan to appropriately expand investment and lower profit forecasts, revenue for 2024-2026 is estimated to be 22.7/24.0/2.52 billion yuan (originally 2024-2025 was 24.5/2.80 billion yuan), and adjusted net profit of -2.4/-0.5/+0.3 billion yuan (originally 2024-2025 was -1.9/+ 0.1 billion yuan). Due to KEEP's revenue growth rate and the expected reduction in adjusted net interest rate, the company's target price was lowered to HK$4.6-4.9, corresponding to the 2024 PS 0.95-1.0x, which is comparable to the company's valuation, expected growth rate and net interest rate situation, maintaining the “increase in holdings” rating.