Revenue and net profit to mother fell 16% and 40% year on year, and GMV fell 38% year on year. One Network One Innovation released its 2023 annual report. The company's 23 service brand GMV totaled 16.344 billion yuan, a year-on-year decline of 38.29%. In 2023, the company achieved operating income of 1,288 billion yuan, a year-on-year decrease of 16.31%, net profit of 108 million yuan, a year-on-year decrease of 40.05%, after deducting non-net profit of 104 million yuan, a year-on-year decrease of 29.95%, EPS of 0.46 yuan, and a planned dividend of 0.135 yuan (tax included) per share.

Factors affecting the company's profit decline exceeding revenue include: the company transferred shares in Zhejiang Shangbai, Shanghai Domi, etc. in '23, causing revenue to decline, which also had an impact of about 20 million yuan on the profit side; additional depreciation and amortization of 20 million yuan after the headquarters building was put into use; at the business level, due to the e-commerce industry being in an adjustment period, traditional brand online management business revenue declined. The company took the initiative to terminate some relatively unprofitable businesses, clean up inventory of some brands, and the initial increase in profit was not obvious; government related Rewards have been reduced by more than 12 million yuan; the fair value of invested products has been reduced by nearly 16 million yuan for each fresh talk, etc.

On a quarterly basis, 23Q1-Q4 companies' revenue in a single quarter was +4.60%, -9.60%, -25.71%, and -24.79%, respectively, while net profit attributable to mother was -17.86%, -16.46%, and -36.37%, respectively.

Online marketing/online management/online distribution/content e-commerce revenue year-on-year ratio -17%, -42%, +18%, and -6% by business: the proportion of revenue from brand online marketing services, brand online management services, online distribution, and content e-commerce services in 23 years was 35.85% (-0.15PCT), 22.86% (-10.12PCT), 32.52% (+9.50PCT), and 8.00% (+0.90PCT), respectively. %, -5.71%

By platform, Tmall accounts for a relatively large share of sales. The sales model is the brand's online marketing service. Revenue in '23 accounted for 28.10% of total revenue (+4.79PCT year on year), and revenue increased 0.90% year on year; Vipshop's revenue in '23 accounted for 11.80% (+2.88PCT year on year), and revenue increased 10.73% year on year.

Gross margin declined, expense ratios increased, inventory increased, turnover slowed, operating cash flow turned into net inflow gross profit margin: gross margin fell 4.26PCT to 29.33% year-on-year in '23. By business, the gross margins of online brand marketing, brand online management, and online distribution were 32.61% (+0.67PCT), 37.74% (-10.39PCT), and 19.26% (+3.04PCT), respectively. On a quarterly basis, gross margins for the 23Q1-Q4 single quarter were 34.30% (-9.82PCT), 30.66% (-5.43PCT), 26.71% (-1.96PCT), and 26.59% (-3.50PCT), respectively.

Expense rate for the period: Expenses for the 23-year period increased by 3.61 PCT to 19.28%, with sales, management, R&D, and finance expenses rates of 13.66% (+3.18PCT), 6.25% (+0.96PCT), 1.29% (-0.81 PCT), and -1.93% (+0.27PCT), respectively. The year-on-year increase in the sales expense ratio was mainly due to the increase in investment in inventory clean-up by some brands in 23, which was affected by increased investment in new business and platforms; the year-on-year decline in R&D expenses was mainly due to the fact that the subsidiary Zhejiang Shangbai was no longer included in the consolidated report in '23, reducing its R&D expenses.

Other indicators: 1) Inventory increased 13.03% year-on-year to 345 million yuan at the end of the year 23. The number of inventory turnover days was 129 days, an increase of 43 days over the previous year. 2) Accounts receivable decreased by 33.64% year on year to 217 million yuan at the end of 23. The number of accounts receivable turnover days was 76 days, an increase of 1 day over year. 3) The net operating cash flow was 86.11 million yuan in '23, turning into a net inflow over the same period last year, mainly due to the increase in the recovery of prior advance payments in '23.

Deeply involved in global e-commerce and general generation business. We expect early investment to gradually show results, and profitability to recover in 23 years. The global e-commerce business showed a steady trend. The share of emerging channels increased, and the GMV of emerging channels increased by more than 60% year over year in 23. Brand customers added 21 new brand collaborations, including Swisse, Lin Qingxuan, 3M, Comfort, Gao Jiesi, Old Street, and Miosele. Among them, Swisse was the first brand to cooperate in the health products category expanded by the new company. 1” Swisse Trade Channel GMV grew 90% year over year and 47% year over year. The general agent business has signed contracts with ILLY Coffee, C&D (C&D), and Beijieli. In addition to the online business, the company is also developing offline channels, focusing on expanding channels such as Sam, Costco, Hema, supermarkets, and duty-free shops.

In terms of global e-commerce business, the company will continue to deepen cooperation with existing brands and accelerate the expansion of new brands. Traditional e-commerce platforms will implement category segmentation strategies, explore low-penetration category markets, and further expand the scale of cooperation with platforms such as Douyin, Xiaohongshu, WeChat Mini Program, and Pinduoduo. At the same time, the company will continue to deepen the general generation business and continue to seek in-depth cooperative general generation projects. The company will also continue to carry out systematic construction and technological innovation to improve efficiency.

It is expected that the impact of the company's business restructuring in '24 will be digested, early investment will gradually show results, and profitability will pick up. Considering the slowing growth of the e-commerce industry, the demand side is still uncertain, the company's transfer of shares in Zhejiang Shangbai, and some new customers are still in the early stages of investment, we lowered the company's 24-25 profit forecast (net profit reduced by 44%/44% from the previous profit forecast, respectively) and added a 26-year profit forecast, corresponding to the 24-26 EPS of 0.66, 0.74, and 0.82 yuan respectively. PE in '24 and '25 was 25 times and 22 times, respectively. As old customers consolidate and deepen, and new customers gradually put down their volume, profitability is expected to gradually rise. Maintain an “Overweight” rating.

Risk warning: Customer/category/platform expansion falls short of expectations; e-commerce traffic growth slows down and operating costs increase; brands withdraw online proxy operation licenses; e-commerce activity sales fall short of expectations.