HTD delivered FY23 results with solid earnings growth (+42% YoY) despite soft top line (+0.4% YoY). For FY24E, mgmt. emphasized secular earnings growth and margin enhancement with aggressive cost control and operating leverage. As such, we modelled stable YoY revenue growth in FY24E, but earnings would surge 28% YoY (with GPM up to 3.5%, +0.2ppts YoY). We are positive on its enhanced profitability ahead, backed by: 1) a higher share of direct sales from member stores; 2) enhancing upstream supply chains; and 3) expanding high-GPM tier-2 categories. We slightly trim HTD's FY24-25E earnings forecast by 12%-14%, to factor in macro uncertainty and strategic adjustments. Our DCF-based TP is revised to HK$50.

FY23 results show an improving margin. FY23 revenue rose 0.4% YoY, 8%

below consensus, while net profit reached RMB448mn (+42% YoY), 11% below consensus. Commerce business was stable YoY, in which consumer electronics/household appliances revenue was resilient at +19%/+0.7% YoY while agricultural product/liquor and beverage fell 22%/32% YoY. Services business revenue declined 17.6% YoY in FY23. GPM climbed up to 3.3% in FY23 from 3.1% in FY22, as HTD prioritizes high-GPM business and cost discipline. Its solid earnings growth and improving margin look acceptable, in our view.

Focusing more on earnings growth with strategic transition. Looking

ahead to FY24E, mgmt. emphasized secular earnings growth and margin enhancement with aggressive cost control and operating leverage. As such, topline growth would not be top metrics in the short run. Considering macro uncertainty and the strategic adjustments, we modelled flat revenue YoY in FY24E, as HTD would focus more on high-GPM business development. On the margin side, we are positive on its enhanced profitability ahead, backed by: 1) a higher share of direct sales from member stores; 2) enhancing upstream supply chains; 3) expanding high-GPM tier-2 categories; and 4) continued discipline in expenditure. We forecast its GPM to improve to 3.5%/3.6% in FY24/25E, and NPM to 0.7%/0.8% in FY24/25E. Net profit would surge 28% YoY in FY24E, in our estimates.

Maintain BUY. We slightly trim HTD's FY24-25E earnings forecast by 12%- 14%, to factor in macro uncertainty and strategic adjustments. We remain positive on its secular earnings growth. Our DCF-based TP is adjusted to HK$50.