Incident: On April 29, the company released the 2023&2024Q1 performance report. In 2023, the company achieved operating income of 4.777 billion yuan/year over year, achieving net profit of 1.05 billion yuan (same period of the previous year - 263 million yuan); Q4 achieved revenue of 1,333 billion yuan/year on year +54.33%, and net profit to mother of 600 million yuan (same period last year - 471 million yuan). 2024Q1 achieved operating income of 1,581 billion yuan/year over year, and realized net profit of -94 million yuan (-38 million yuan in the same period last year).

The main factor is the impact of the base figure. 2023Q4 revenue accelerated month-on-month, and the cost of new consumer projects took the lead. 1) Revenue side: 2023Q4, the company achieved revenue of 1,333 billion yuan/year over year +54.33%, mainly due to base impact, and revenue accelerated month-on-month. Looking at the breakdown, throughout 2023, the company's new media advertising business achieved revenue of 2.38 billion yuan/year on year +91.2%, social e-commerce business achieved revenue of 1.73 billion yuan/year on year -24.2%, self-operated brands and brand distribution business achieved revenue of 260 million yuan/year on year +408.6%, clothing and footwear business achieved revenue of 400 million yuan/year on year +25.7%, and other businesses achieved revenue of 0.09 billion yuan/year on year. 2) New project cost first: The company implemented new consumer projects using Hangzhou Yuanwang X27PARK, Yinru Yuowang Wenzhou Digital Ecological Industry Chain Base, and Yuanwang Tianmen Live Streaming Operation Base as benchmarks. The cost was first priority before opening, and the investment in manpower and material resources was significant. 3) Profit side: The gross margin of 2023Q4 was -2.1%, which is still a sharp decrease from year to month; the sales cost rate/management cost rate/R&D cost ratio of 2023Q4 was 9.0%/6.3%/1.5%/1.3%, respectively, +3.0/-3.2/-1.4/+0.6pct, respectively. Among them, 2023Q4 sales expenses increased, mainly due to increases in employee remuneration, storage and rental fees, agency services and intermediary agency fees, advertising and promotion expenses, etc. Looking at business segments throughout the year, new media advertising/proprietary brands and brand marketing/social e-commerce and clothing and footwear businesses achieved gross profit margins of 1.78%/5.08%/-0.38%/10.78%, respectively, compared with the same period last year

-4.62pct/+1.98pct/-22.61pct/-20.58pct.

Clean up the footwear business and accrue losses, and profit-side losses expand. In addition, as the repayment of accounts receivable from the footwear business fell short of expectations, and the company confirmed a credit impairment loss of -338 million yuan; the company anticipated a decline in profitability of Fashion Fengxun and Beijing Shixin, and confirmed asset impairment losses of -133 million yuan due to the acquisition of these asset portfolios in 2017, and confirmed asset impairment losses of -133 million yuan (zero residual goodwill value after impairment). Overall, the company achieved net profit to mother of 600 million yuan in 2023Q4 (-471 million yuan in the same period last year), and realized net profit to mother of 1,050 million yuan for the whole year (-263 million yuan for the same period last year).

Launch new consumer projects, actively deploy AI, and expand business margins. 1) Create a new consumer benchmark for “digital and real integration”. In December 2023, the 250,000-square-meter “Yuanwang X27 PARK” officially opened in Linping, Hangzhou. ① On the supply chain side, we have established a supply chain system with more than 25,000 domestic and foreign brands, covering all categories of products; ② In terms of scenarios, the high-decoration standard scenario supports the offline listing and live streaming of products, and can accommodate up to 350 live broadcasts at the same time; ③ In terms of service, the company is equipped with a mature live streaming operation team, a self-developed Yuanwang cloud system and supply chain SaaS platform to provide one-stop supporting services for anchors and suppliers. The company established Yuanwang X27's “live streaming+cultural tourism+membership system” business model. 2) Actively develop Telemetry AIOS. The company independently developed “Yuanwang Cloud AIOS”, a digital platform for the entire live streaming process, which will integrate live streaming business and supply chain management, and has now been integrated into the company's daily management to optimize labor costs. 3) In the first year of the official layout of internationalization, global traceability began.

During the reporting period, the company livestreamed globally through anchors in France, South Korea, New Zealand, etc., and has now formed a Tik Tok live streaming team and plans to carry out the company's first live broadcast on Tik Tok in North America in June 2024. 4) Continuously expand business margins. Since 2023, the company has co-produced “Let's Plant Land”, co-hosted the “Legend of the White Snake 30 Year Concert”, and launched a short drama platform in the form of a WeChat Mini Program. Variety shows, skits, and concerts have all achieved a preliminary layout.

2024Q1 revenue continues to grow, and strategic transformation is progressing steadily. 1) 2024Q1 revenue continues to grow.

Achieved operating income of 1,581 billion yuan/year over year, mainly driven by social e-commerce business growth; gross margin -1.0pct to 8.1%, recovering month-on-month; sales/management/R&D/finance expenses ratio -1.1/+1.8/-0.1/+0.1pct year over year to 2.4%/8.3%/1.5%/0.8%. Among them, upward management rates led to an increase in labor and equity incentive expenses. 2) The strategic transformation is progressing steadily. The company made full use of the advantages of Yuanwang X27. There were more than 60 artists signed up for 2024Q1 and hundreds of in-house talents. The company paid GMV of 4.5 billion/about +80% year over year, the number of broadcasts was +157% year over year, and the number of broadcast accounts increased by about 108%. The company's skit business has a turnover of about 81 million, and the scale of skits is expected to expand rapidly.

Investment advice: As the leading MCN in the domestic live e-commerce industry, the company has achieved coverage of three major platforms, has strong supply chain resources and anchor matrices, and will continue to cultivate in the future; new consumer projects were launched in 2023, and costs have risen, and the business layout is actively expanding. Referring to the 2023&2024Q1 performance, we adjusted the company's 2024-2026 revenue to 5.70/71.6/8.61 billion yuan, and net profit to -134 million/116 million/305 million yuan, maintaining the “increase” rating.

Risk warning: risk of tightening industry regulations; competition increasing risk; macroeconomic risk.