Revenue remained flat and profits improved. The company's revenue in 2023 was RMB 82.4 billion, up 0.4% year on year; gross margin improved 0.17pp to 3.32% year on year; adjusted net profit was 450 million yuan, up 10% year on year, and adjusted net interest rate was 0.54%.

The trading sector remained stable, and the consumer electronics category showed outstanding performance. In 2023, the company's trading business remained stable, with a year-on-year increase of 0.5% to 81.6 billion yuan; gross margin improved 0.18pp to 2.50% year-on-year. By category, consumer electronics products performed well, with revenue up 19.0% year on year, an important driver for the company's business growth, mainly due to the company strengthening strategic cooperation with leading brands in the industry to further expand sales channels; agricultural production materials fluctuated greatly, down 22.3% year on year, mainly due to the company's active adjustment of business structure; and weak household appliances, down 11.5% year on year. The coverage density of member stores continued to increase, and the number of active member stores increased 19.1% year over year to 90,700.

The service sector has shrunk, and the number of paying users has increased dramatically. Due to the company's business strategy adjustments and the reduction of some low-margin businesses, service business revenue fell 17.6% year on year to 650 million yuan in 2023. Among them, store SaaS+ subscriptions increased 5.3%, merchant solutions decreased 64.5%; gross margin increased 13.0pp to 87.7% year over year. As the company expanded its coverage of lower back customers, ARPU decreased year over year, but the number of paying users increased dramatically. The number of SaaS+ subscribers increased 15.6% year over year to 132,000, of which the number of paid users increased 61.4% year over year to 481,000, and the payment rate increased to 36.5%.

Maintain the “Buy” rating and adjust the target price to HK$36. Due to the recovery in consumption and the impact of the company's business adjustments, we expect 2024E revenue to increase 2% year over year to $84.2 billion, net profit increase 36% year over year to $610 million, adjust the target price to HK$36, corresponding to 2024E 30xP/e, and maintain a “buy” rating.

Investment risk: Consumption recovery falls short of expectations; profit improvement falls short of expectations.