Introduction to this report:

Q1 Due to the impact of the high base last year, net revenue and profit declined; with changes in the organizational system, online and offline joint development, and the increase in the share of functional lenses, we are optimistic that the company's core business will steadily recover.

Key points of investment:

Maintain an increase in holdings. Q1 revenue was 296 million yuan/ -4.47%, and net profit to mother was 25 million yuan/ -32.9% in line with previous expectations. Maintain the 2024-26 EPS forecast of 0.91/1.1/1.32 yuan, a growth rate of 23/22/ 20%, maintain the target price of 21.39 yuan, and maintain the increase in holdings.

After excluding Douyin, revenue remained stable, and expenses increased. 1) Q1 Douyin Local Life Transformation Store's write-off revenue of 0.14 million yuan/ -54.6% (total online 0.38 million yuan/ -25.3%), Q1 revenue increased 1.26% after excluding Douyin due to changes in platform traffic support policy/online peer competition division/offline store sales carrying capacity; 2) Q1 gross profit margin 59% /-0.5pct, net profit margin 8.5% /-3.87pct; 3) Expense ratio of 47.8% /+4pct, including sales/management/financial R&D expenses, respectively 39.7/7.21/ 0.54/ 0.35%, +3.31/+0.29/+0.06/+0.35pct, respectively; 4) Net operating cash flow of 59 million yuan/ -33.8%, due to declining revenue scale and increased stocking.

Advance the franchise matters and plan to pay dividends in mid-2024. 1) As of the end of Q1, the total number of users on the Concrete Glasses Alliance platform (Original Mirror Link Tesco platform) had completed the registration process, and 598 franchise store users had completed the signing process; in the future, the franchise mechanism will be gradually optimized, the overall competitiveness of franchise stores will be enhanced, and the hematopoietic capacity of the franchise business will be strengthened; 2) It is planned to distribute dividends in the middle of 2024 (including half a year and the first three quarters) or before the Spring Festival. The maximum cumulative dividend for the current period is 60% of the net profit to the mother.

Optimizing the organizational structure will enable growth, and we look forward to the smart glasses layout. 1) A new data operation department and user operation department are set up, and organizational efficiency is expected to be further enhanced; 2) Cooperation has been reached with Thunderbird, ROKID, Meizu, etc. to promote the smart glasses business layout. MYVU AR smart glasses will officially enter the company's offline stores nationwide on April 12; 3) Our own brands and functional lenses are expected to continue to grow rapidly.

Risk warning: store expansion, franchise business, smart glasses layout falling short of expectations, increased competition, etc.