According to the research report released by JY Securities International, the short-term profit margin trend of East Buy (01797) still has uncertainty, and the recent business strategic management adjustment period. The current price has reflected the short-term business growth potential. They have initiated a 'neutral' rating with a target price of HKD 13.4. The bank expects that the company's revenue in fiscal years 2024/2025 will increase by 45%/13% year-on-year to CNY 6.6 billion/CNY 7.4 billion; net income after adjustment will be CNY 690 million/CNY 840 million, a decrease of 37%/23% compared with the fiscal year 2023 CNY 1.1 billion. The bank believes that after the independent development with Huitongxing, East Buy strategically focuses on self-owned product construction. The growth of the main account traffic, the contribution of the Taobao channel still needs to be observed, and new businesses such as instant retail and going global are still in the early stages.

Bocom International's main points are as follows:

The main concerns of the market include

1) Short-term pressure on profit; 2) Main account GMV data decline; 3) Stability of large anchors and company management strategy still in adjustment period. The bank believes that the company's profit margin may bottom out in the third quarter of fiscal year 2024 (ending on February 29, 2024). The third quarter of fiscal year 2024 is a period of strategic adjustment for the company, increasing the promotion of self-owned products, resulting in a decline in gross margin of self-owned products. After the Spring Festival, operations gradually return to normal rhythm, and special live broadcasts are promoted more actively. It is expected that the company's profitability in the fourth quarter will be better than the third quarter, but considering that self-owned products still aim for scale growth in the short term, there is still uncertainty in investment intensity.

The growth of the main account traffic faces challenges, and some of the GMV scale is diverted by the shelves and other channels.

After the 'small essay' incident, the number of followers of the East Buy main account briefly declined, and it has now stabilized at a level of 30 million. But it does reflect the pressure on the growth of new traffic. The company's long-term development in expanding its circle of friends is facing challenges. After Huitongxing went live, in March and April, the GMV of East Buy's main account live broadcast room (excluding shelf sales) dropped to CNY 200-300 million. Currently, it is stable month-on-month. The decline in main account data reflects the pressure on traffic growth, and also reflects the impact of diversion by matrix accounts. The estimated daily average GMV is about CNY 10 million (including shelf sales). Since late March 2024, East Buy has resumed outdoor live broadcasts, and the GMV during special events is roughly the same as that of special events before the 'small essay' incident. The bank observes that during special event periods, live broadcast rooms promote self-owned products through incentive activities such as Lucky Bags, which will attract customers in the long run, but will affect the company's profit margin in the short term.

After Huitongxing enters the stable operation stage, it will contribute to the incremental profit.

The bank believes that the daily average GMV of the Huitongxing live broadcast room is expected to be maintained at CNY 150-200 million, and the monthly GMV is CNY 0.5-0.6 billion. In the future, cultural special events will continue to promote the tone of the live broadcast room, and through brand/scenery special events, it is expected to push the GMV of a single live broadcast to over CNY 100 million and maintain the stable operation of the live broadcast room, contributing to the incremental profit of the company. The management has announced that they will not simply divide the profits with Dong Yuhui. Although personnel costs may rise, the company's profit structure is still better than other MCNs.