Key points of investment

Incident: One Network One Innovation published its 2023 annual report. In the first half of 2023, the company achieved operating income of 610 million yuan, a year-on-year decrease of 3.62%; net profit of 86.966 million yuan, a year-on-year decrease of 17.15%; net profit after deducting non-return net profit of 82.1412 million yuan, a year-on-year decrease of 14.59%. Among them, in the second quarter, the company achieved revenue of 331 million yuan, a year-on-year decrease of 9.60%; net profit of 44.3542 million yuan, a year-on-year decrease of 16.46%; net profit after deducting non-return net profit of 43.902 million yuan, a year-on-year decrease of 2.58%.

Market sluggish affects short-term performance, and optimized services maintain competitive advantage. 1) Weak market consumption: Weak market consumption led to a decline in sales revenue and gross profit from the company's stock projects. Coupled with a year-on-year increase in the share of revenue from online distribution and brand online marketing services with lower gross profit margins, H1's overall gross margin decreased by 7.15 pcts to 32.32% year on year in 2023. The company's sales expenses rate was 12.08%, an increase of 0.96 pcts over the previous year.

2) “Zhejiang Shangbai” divestment: The company transferred holding subsidiaries “Zhejiang Shangbai” and “Zhejiang Shangbai” in the first half of the year

After not being included in the scope of the merger, the company achieved GMV7.514 billion yuan in the first half of the year, a year-on-year decrease of 31.42%, a year-on-year decrease of 6.73%, a year-on-year decrease of 0.78 pcts; the R&D expense rate was 1.41%, a year-on-year decrease of 1.94 pcts.

Deeply cultivate the e-commerce service sector and build a new consumer brand accelerator. 1) Global layout leader: The company has established independent Tmall, JD, Vipshop, Pinduoduo, Douyin, Xiaohongshu and private domain divisions, and has successfully joined the multi-platform leading service provider list. It continues to accumulate closed-loop marketing experience across platforms. It is expected to form collaborative advantages and promote multi-brand business growth in the future. 2) Build a one-stop service platform: The company has one-stop service capabilities from front-end brand packaging design and global marketing, mid-tier full-platform operation to back-end customer service, supply chain, and membership management operations. It is expected to continue to drive customer growth and broaden customer needs. 3) Refined operation efficiency is remarkable: By sorting out, transforming and solidifying the operation system, the company has accumulated a large number of standardized e-commerce processes and methodologies, and through technology iteration, it has achieved 105 execution nodes covering the front, middle and back office, covering automated operations covering operations, design, finance, supply chain, etc., and the business stability and efficiency have continued to improve. 4) Rich operating data accumulation: Through years of operating experience on mainstream e-commerce platforms, the company has formed rich data accumulation, and built a complete set of methodological systems and data models for screening, planting, and exploiting new products and hot models for different categories and price ranges, effectively improving the start-up success rate of main products, optimizing the overall efficiency of marketing expenses for new products and hot products, and is expected to continue to increase performance.

Profit forecast: We have slightly adjusted our profit forecast. We expect the company's net profit to be 276/318/366 million yuan for 2023-2025. PE corresponding to the current stock price (August 29, 2023) will be 21.8/18.9/16.4 times, respectively, maintaining the “increase in holdings” rating.

Risk warning: market environment risk, risk of seasonal fluctuations in business performance, platform risk, risk of stock price fluctuation