Jinwu Financial News | According to BOC International Research, after the “Little Essay” incident, the Dongfang Selection main account experienced a brief decline in the number of followers. Currently, it has stabilized at the level of 30 million, but it does reflect a situation where new traffic growth is under pressure, and the company's long-term expansion and development is facing challenges. After the launch of Lihui and Company, in February-March, the GMV of the Dongfang Selection main account live broadcast room (excluding shelf sales) dropped to 2-3 billion yuan (RMB, same below), and is currently stable month-on-month. On the one hand, the decline in main account data reflects the pressure on traffic growth. On the other hand, it also reflects the impact of being diverted from matrix accounts, etc., and the average daily GMV is estimated to be around 10 million yuan (including shelf sales amount).

The bank expects the company's profit margin to bottom in the 3rd quarter of fiscal year 2024 (ending February 29, 2024). The third quarter of fiscal year 2024 was a strategic adjustment phase for the company, increasing the promotion of self-operated products, which led to a decline in the gross margin of self-operated products. After the Spring Festival, operations gradually returned to a normal pace, and live broadcasts were promoted more actively. It is expected that the company's profitability in the fourth quarter will improve compared to the third quarter. However, considering that self-operated products are still aimed at scale growth in the short term, there is still uncertainty about the level of investment.

The bank said that after developing independently with Hui's peers, Dongfang's selection strategy focused on self-operated product construction, while the increase in main account traffic and Taobao channel contributions remain to be seen, and new businesses such as instant retail and overseas sales are still in their early stages. The bank expects the company's revenue to increase 45%/13% year on year to 6.6 billion yuan/7.4 billion yuan in the 2024/2025 fiscal year; adjusted net profit is 690 million yuan/840 million yuan, down 37%/23% from the 2023 fiscal year 1.1 billion yuan. Based on the valuation range of Chinese consumer brands, MCN institutions and e-commerce platforms, the bank believes that the company's reasonable price-earnings ratio is 16 times. Based on adjusted net profit of RMB 840 million in fiscal year 2025, it is valued at HK$14.5 billion, corresponding to a target price of HK$13.40 billion. The bank is optimistic about its proprietary product strategy, and at the same time has better profit margins and business ceilings compared to other MCN institutions, so it enjoys a valuation premium. However, considering the short-term profit margin trend, there is still uncertainty and the recent business strategy management adjustment period. The current price already reflects the short-term business growth potential, and the initial neutral rating is given.