Enjoyment Group's revenue for the first half of 2023 was HK$2.148 billion, +57.2% year-on-year; net loss for the first half of 2023 was HK$1.95 million (vs. 22H1 return net profit of HK$75.48 million). The company's overseas e-commerce is progressing smoothly, developing new brands and categories, and improving gross margin; the central enterprise mixed reform company will focus on high-quality film and television investment opportunities; and the domestic business layout has been strategically adjusted. Maintain buy ratings.
Key points to support ratings
Overseas e-commerce revenue continues to grow dramatically, opening up new brands and categories. 23H1 Overseas e-commerce sales revenue was HK$1,944 million, +90.4% year-on-year. In the first half of the year, the company successfully expanded new well-known consumer electronics suppliers. Local cooperative distributors in Southeast Asia grew rapidly, up 82.99% compared to the end of 2022. The MARTOP platform has begun to expand sales of non-mobile phone categories such as tablets to seize more market share. The company officially started the TikTok e-commerce business on 21Q4. The main market is in Southeast Asia. The region has been China's largest trading partner for three consecutive years since 2020. Per capita income has grown rapidly, and there is broad scope for short video e-commerce development.
Participate in the mixed reform of central enterprises, focus on film and television investment, and deploy AIGC technology. After the equity restructuring was carried out by the central enterprise Poly Pictures Group and the central enterprise Poly Pictures, it established Poly Entertainment Technology. It mainly develops businesses such as film and television investment and MCN, and cultivates its own traffic for marketing and monetization. Subsequent companies will focus on high-quality film and television project opportunities to invest in. In terms of new technology, the company launched its own blockchain “Poly Entertainment Technology Chain” in 2022, connected to the NFT platform “Kukane” and the first batch of external ecological partners; in the first half of the year, it successfully developed a digital holographic display system combining digital human and AI technologies and applied it in the cultural tourism industry.
The gross margin of overseas e-commerce has increased, and marketing and promotion expenses have increased in stages. 23H1's gross profit margin was 9.86%, -3.9 ppts year on year. The decline in gross margin was mainly due to the continued increase in the share of overseas e-commerce business, while the gross margin of this business was low. The gross margin of the overseas e-commerce business in the first half of the year was 6.94%, +1.75 ppts; the gross profit margin of the domestic business was 37.67%, -1.55 ppts from the previous year. The sales expense ratio is 14.8%, +12ppts, which is basically the same as last year, mainly due to the sharp increase in overseas business promotion expenses; the R&D/management expense ratio is 2.0%/2.9%, which is basically the same as the year-on-year -1.4ppts.
Strategically adjust domestic digital marketing and Douyin e-commerce business. 23H1 Mutual Entertainment and Digital Product Marketing revenue was HK$55.38 million, or -75.8% year-on-year; the decline was mainly due to company adjustments in business layout and declining advertisers' marketing budgets. Domestic short video e-commerce GMV was HK$255 million, -17.9% year on year, and domestic e-commerce revenue was HK$149 million, +28.5% year on year. Although GMV declined, revenue growth was mainly due to the company adding customers and e-commerce categories with a high share ratio. This revenue was included in the net amount method.
valuations
2023-24 is a critical period for the company's overseas e-commerce business to acquire markets. It is expected that gross margin will continue to increase with the diversification of categories, and marketing channel subsidies will gradually decline as the distribution network expands. We expect net profit to parent to be -4.39/-2.45/HK$96 million for 2023/24/25, maintaining the buying rating.
The main risks faced by ratings
Southeast Asia's economic growth is slowing down; overseas e-commerce policy risks; increased competition; film and television investment project risks.