The GMV growth rate of Oriental selection has slowed down recently.
The GMV growth rate of Dongfang selection has slowed recently, with the average daily GMV reaching 18 million yuan in August (compared with 29 million yuan in June and 21 million yuan in July), according to gray dolphin data. In the first week of August, Oriental GMV fell slightly to second place.
The increase in the number of new fans has also declined, with an average daily fan gain of 34000 in August (compared with 85000 in July). The company recently denied Douyin current restrictions (links), but in our view, the potential impact of competition may be greater than the less likely Douyin current restrictions. In addition, Yu Minhong, chairman of the company, said that the profitability of Oriental selection in the next five years is not a priority (link). We believe that this is related to the company's own brand research and development, marketing, talent introduction / incentives and other measures that contribute to long-term sustainable growth.
The strategic direction is clearer and supports long-term development.
We believe that Oriental selection will continue to focus on: 1) own brand strategy to improve product quality. Oriental selection currently has 18 proprietary products (such as steak, spaghetti, books, etc.), with proprietary products accounting for about 17 per cent of GMV (compared with about 5 per cent in June). In addition, the chairman of the company said that he would continue to develop his own brand and expand the sales channel in the future. 2) category expansion. The new Douyin live account-Oriental Select Beautiful Life, which began broadcasting in early July, mainly focuses on cosmetics, home appliances and other categories. According to gray dolphin data, the average daily GMV over the past 30 days has reached about 1.3 million yuan (accounting for about 6% of the average daily GMV in July). 3) content differentiation. Oriental selection launched two outdoor live broadcasts in Beijing and Heilongjiang in July, with the average daily GMV of Heilongjiang reaching 40 million yuan on July 26th, the recent peak.
Neutral: long-term operational capability / profitability is the main concern
The decline in GMV growth is in line with our previous expectations (see our report), which is part of the reason why we downgraded to neutral on June 17th. We believe that the outlook depends on whether the company can continue to make creative gains in attracting consumer attention and training more talent, thereby raising GMV growth expectations, and taking into account the chairman's statements about profit uncertainty, we should pay attention to the associated valuation downside risks. We maintain our neutral rating on New Oriental Education & Technology Group online and keep the target price unchanged at HK $20.90. Main risks: 1) regulation; 2) competition; 3) GMV performance; 4) talent retention.