The “Zhejiang Shangbai” announcement affected the results for the first half of the year, optimistic about the subsequent performance repair, and maintained the “buy” rating 2023H1. The company achieved revenue of 610 million yuan, a year-on-year decrease of 3.62%. The main subsidiary “Zhejiang Shangbai” was no longer included in the scope of the merger, and consolidated revenue decreased; realized net profit of 86.97 million yuan, a year-on-year decrease of 17.15%. Mainly due to the fact that the company's newly built buildings were put into use, depreciation and amortization increased by about 13 million yuan; at the same time, due to the fact that “Zhejiang Shangbai” was no longer included in the scope of the merger. At 2023Q2, the company achieved operating income of 331 million yuan, a year-on-year decrease of 9.60% and a year-on-year increase of 18.72%; realized net profit of 44.35 million yuan, a year-on-year decrease of 16.46%, and a year-on-year increase of 4.08%. Considering the impact of the “Zhejiang Shangbai” publication, we lowered the 2023-2024 and added a profit forecast for 2025. We expect net profit from 2023-2025 to be 2.59/305/349 million yuan respectively (pre-2023-2024 values were 386/495 million yuan, respectively), corresponding EPS was 1.08/1.28/1.46 yuan respectively, and the current stock price corresponding to PE is 23.3/19.8/17.3 times, respectively. We are optimistic that the company's leading position in global services will become more and more stable. Performance gradually recovered as consumption recovered, and the “buy” rating was maintained.

A weak recovery in consumption, compounded by an increase in the share of low gross margin business revenue, led to a significant increase in the company's 2023H1 low gross margin business revenue share under short-term gross margin pressure. The 2023H1 brand's online marketing service revenue was 218 million yuan, up 3.10% year on year, online distribution business revenue was 179 million yuan, up 44.08% year on year, and online brand management service revenue was 146 million yuan, down 39.67% year on year. The gross margin of the online distribution business was 16.53%, and its share of revenue increased 9.75 pct to 29.45% year on year. As a result, the company's overall gross margin for 2023H1 fell 7.15 pct to 32.32% year on year, and net profit margin fell 3.48 pct to 14.28% year on year. We believe that with the subsequent recovery in consumption, the online brand management service business is expected to gradually resume, driving the company's profitability to continue to improve.

The number of service brands has steadily increased, with brand leadership or driving company performance growth. The company's core product performance is stable. 2023H1's Tmall GMV was 223 million yuan, down 0.59% from the previous year, and the number of orders was 2.794 million, an increase of 11.98% over the previous year. At the same time, the company's customer expansion results were remarkable. Sixteen new brands, including Swisse (Swisse), Lin Qingxuan, Linefriends, Gao Jiesi, Jiebi, illy Coffee, and Beijieli, were added. The brands served were further concentrated at the top, and the company's global service capabilities continued to increase. We believe that in a context where anchors in the live e-commerce industry are becoming flattened, the importance of brand self-broadcasting is highlighted, and the company, as a leader in the proxy management industry, is expected to share the track dividends based on its rich high-quality brand reserves.

Risk warning: Risks such as increased competition in the agency management industry and the company's online operation rights being taken back by the brand.