Incident: The company announced that it intends to use its own capital to establish Hangzhou Chainqi Future Co., Ltd. in a joint venture with the company's chairman Mr. Wang Jianguo, Mr. Xu Weihong, director/general manager, and Mr. Shi Guanglei, director/deputy general manager/board secretary, and Xinxuan Holdings, Mr. Du Chenpeng, Mr. Zheng Jiabai, Ms. Yang Runxin, Mr. Zhou Tong, and Ms. Xing Ling Wei to establish a new home e-commerce live streaming retail business.

Chainkai will merge in the future, and the company and management team hold 45% of the shares. The joint venture has a registered capital of 10 million yuan, of which the company holds 33% of the shares, the company's chairman, general manager and deputy general manager each hold 5%/4%/3% of the shares, and the company and co-actors hold a total of 45% of the shares, forming a holding, which is included in the scope of the company's consolidated statements. Xinxuan Holdings holds 10% of the joint venture. The actual controller is Xin Youzhi (influencer Simba), and Du Chenpeng, Zheng Jiabai/Yang Runxin/Zhou Tong/Xing Lingwei each hold 10%/10%/10%/10% shares in the joint venture. Zheng Jiabai is one of the founders of Xinxuan Group, and Yang Runxin is the core anchor of Xin Xuan. In terms of the composition of the board of directors, the company occupies two seats and appoints the chairman and financial director. The joint venture company is randomly selected and appointed. The company accounts for more than half of the number of directors, and can control the joint venture's business plans, profit distribution plans, etc. In terms of categories, the joint venture's live broadcast room is not limited to selling mother and child categories; it covers a wide range of topics.

Collaborate on strengths to jointly develop new home e-commerce live streaming and new offline retail business. The company set up digital live streaming in 2023, and the Simba team has formed a strong influence in Kuaishou Live. Xinxuan Group plans to lay out offline business, and the company has rich offline retail experience and has more than 1,000 stores in 21 provinces, so the advantages of the two sides are expected to complement each other. In addition, the company is deeply involved in the pan-maternal and child lifestyle category. The pan-maternal and child lifestyle category accounts for about 80% of GMV in the selected year, or about 40 billion yuan. The two sides have a high degree of overlap in categories. Xin Xuan is expected to empower the company with its own live streaming traffic, and the two sides will also collaborate in the supply chain system.

Investment advice: The company is a highly flexible target under the opportunities of the infant industry chain. It is expected to benefit from policy promotion, and the business boundaries will continue to expand, which is expected to increase profits. We expect the company's net profit to be 0.21/0.299/0.366 billion yuan in 2024-2026, corresponding to PE 59.2/41.7/34.0X, maintaining an “incremental” rating.

Risk warning: The birth rate has declined; the economic growth rate has declined; the effects of store expansion and cultivation have fallen short of expectations.