Investment Rating - The report assigns a "Neutral" investment rating to the company, 东方甄选 (1797 HK), with a target price of HKD 15.60, indicating a potential downside of 3.6% from the current price of HKD 16.18 [1][2][11]. Core Insights - The company's short-term financial performance is expected to be impacted by business adjustments, but there are signs of operational recovery. The focus will be on enhancing self-operated products, brand influence, and expanding APP membership, particularly through collaboration with New Oriental Group [1][6]. - The financial forecasts for FY2025 show a revenue of RMB 4,710 million, a slight increase of 1.8% from previous estimates, while gross profit is expected to rise significantly by 46.0% to RMB 1,486 million [5][13]. - The gross margin is projected to improve to 31.5% in FY2025, up from 22.0% in the previous forecast, reflecting a recovery in self-operated products [5][13]. Financial Data Summary - Revenue for FY2025 is estimated at RMB 4,710 million, with a gross profit of RMB 1,486 million and a gross margin of 31.5% [5][13]. - The adjusted operating profit is forecasted to be RMB 64 million, a significant decrease of 78.4% compared to previous estimates, indicating challenges in operational efficiency [5][13]. - The net profit attributable to shareholders is expected to be RMB 76 million for FY2025, down 77.5% from prior estimates, reflecting the impact of strategic adjustments [5][13]. Market Performance - The company's market capitalization is approximately HKD 16,758.76 million, with a 52-week high of HKD 28.90 and a low of HKD 9.50 [4][11]. - The year-to-date stock price change is reported at -10.01%, indicating a challenging market environment [4][11].

Financial Performance - Total revenue for the six months ended November 30, 2024, was RMB 2,186.6 million, a decrease compared to RMB 2,795.0 million in the same period last year[5] - Gross profit for the six months ended November 30, 2024, was RMB 735.1 million, down from RMB 1,094.1 million in the previous year[5] - Net loss attributable to the company's owners for the six months ended November 30, 2024, was RMB 96.8 million, compared to a net profit of RMB 249.2 million in the same period last year[5] - Adjusted net loss for the six months ended November 30, 2024, was RMB 1.6 million, compared to an adjusted net profit of RMB 523.5 million in the previous year[5] - Net revenue from continuing operations (self-operated products and live e-commerce business) decreased by 9.3% to RMB 2.2 billion for the six months ended November 30, 2024, compared to RMB 2.4 billion for the same period in 2023[12] - Net loss from continuing operations was RMB 96.5 million for the six months ended November 30, 2024, compared to a net profit of RMB 160.7 million for the same period in 2023[12] - Excluding the financial impact of the sale of Yuhui Tongxing, the net profit from continuing operations was RMB 32.7 million for the six months ended November 30, 2024[12] - Total revenue from continuing operations decreased by 9.3% from RMB 2.4 billion in the six months ended November 30, 2023, to RMB 2.2 billion in the six months ended November 30, 2024[27] - Excluding revenue from the "与辉同行"直播间, total revenue from continuing operations decreased by 18.0% from RMB 2.4 billion to RMB 2.0 billion[27] - Revenue from self-operated products and live e-commerce decreased by 9.3% from RMB 2.4 billion to RMB 2.2 billion, with self-operated products contributing approximately RMB 1.7 billion[28] - Gross profit from continuing operations decreased by 7.4% from RMB 794.2 million to RMB 735.1 million, while gross margin increased from 32.9% to 33.6%[30] - Net loss from continuing operations was RMB 96.5 million, compared to a net profit of RMB 160.7 million in the same period last year[37] - Adjusted net profit from continuing operations, excluding the financial impact of the sale of "与辉同行", was RMB 32.7 million[37] - Adjusted (loss)/profit for the period from continuing operations was RMB (1,609) thousand, compared to RMB 434,288 thousand in the same period last year[41] - Adjusted (LBITDA)/EBITDA for the period from continuing operations was RMB (68,223) thousand, compared to RMB 500,128 thousand in the same period last year[42] - Total revenue for the six months ended November 30, 2024, was RMB 2,186,636 thousand, a decrease from RMB 2,411,323 thousand in the same period in 2023[74] - Gross profit for the six months ended November 30, 2024, was RMB 735,143 thousand, down from RMB 794,150 thousand in 2023[74] - The company reported a net loss of RMB 96,503 thousand for the six months ended November 30, 2024, compared to a net profit of RMB 249,191 thousand in the same period in 2023[74] - The company reported a loss attributable to owners of RMB 96,799 thousand for the six months ended November 30, 2024, compared to a profit of RMB 249,191 thousand in the same period in 2023[96] - The basic and diluted loss per share for the six months ended November 30, 2024, was RMB 0.094, based on a weighted average of 1,032,195,755 shares[96] GMV and Sales Performance - GMV for the six months ended November 30, 2024, was RMB 4.8 billion, down from RMB 5.7 billion in the same period last year[9] - GMV for self-operated products and live e-commerce decreased by 16.2% to RMB 4.8 billion for the six months ended November 30, 2024, from RMB 5.7 billion for the same period in 2023[12] - The company's total GMV for the six months ended November 30, 2024, was RMB 4.8 billion, with 13.6% coming from the app[18] - The number of paid orders on Douyin for third-party and self-operated products reached 50.1 million for the six months ended November 30, 2024[18] - Paid orders on Douyin decreased to 50.1 million for the six months ended November 30, 2024, from 59.6 million in the same period last year[9] - The company's app has over 200,000 paid members, with self-operated products accounting for 28.9% of total GMV for the first half of fiscal year 2025, up from 16.8% in the first half of fiscal year 2024[22] - Self-operated products accounted for approximately 37% of total GMV for the six months ended November 30, 2024[15] User and Membership Metrics - Number of followers on Douyin increased to 46.0 million as of November 30, 2024, from 45.8 million in the previous year[9] - Paid membership subscriptions on the company's own app increased to 228.3 thousand as of November 30, 2024, from 123.8 thousand in the previous year[9] - User satisfaction on the company's app reached 98.6% in the first half of fiscal year 2025, up from 96.6% in the first half of fiscal year 2024[22] Expenses and Costs - Sales and marketing expenses increased by 24.3% from RMB 369.6 million to RMB 459.3 million[32] - R&D expenses increased by 11.9% from RMB 60.8 million to RMB 68.0 million[33] - Administrative expenses increased by 180.7% from RMB 139.6 million to RMB 391.9 million[34] - Sales and marketing expenses increased to RMB 459,304 thousand in 2024 from RMB 369,634 thousand in 2023[74] - Research and development expenses rose to RMB 68,000 thousand in 2024 from RMB 60,753 thousand in 2023[74] - Administrative expenses surged to RMB 391,916 thousand in 2024 from RMB 139,610 thousand in 2023[74] - Total employee compensation expenses (including share-based compensation) for the six months ended November 30, 2024, were RMB 532.8 million, a decrease of 14.7% compared to RMB 624.8 million in the same period last year[50] Cash Flow and Financial Position - Cash and cash equivalents as of November 30, 2024, were RMB 1.7 billion, compared to RMB 2.3 billion as of May 31, 2024, and RMB 1.3 billion as of November 30, 2023[43] - The company's asset-liability ratio was 17.4% as of November 30, 2024, compared to 30.3% as of November 30, 2023, and 24.0% as of May 31, 2024[44] - Capital expenditures for the six months ended November 30, 2024, were RMB 23.4 million, compared to RMB 19.0 million in the same period last year[45] - The company's total assets decreased to RMB 5,698,465 thousand as of November 30, 2024, from RMB 6,163,887 thousand as of May 31, 2024[78] - Cash and cash equivalents decreased to RMB 1,705,703 thousand as of November 30, 2024, from RMB 2,262,464 thousand as of May 31, 2024[78] - The company's equity attributable to owners of the company was RMB 4,946,983 thousand as of November 30, 2024, slightly down from RMB 4,969,216 thousand as of May 31, 2024[79] - The company had no bank loans or other borrowings during the reporting period and has no plans to incur any borrowings within the next 12 months[52] - The unused balance from the 2020 subscription proceeds was approximately HKD 514.2 million as of November 30, 2024, with a slight decrease to HKD 512.1 million by the announcement date[65] - The company allocated HKD 6.5 million for sales and marketing, HKD 7.2 million for business-related personnel, and no funds for technology infrastructure and working capital during the six months ending November 30, 2024[66] - The expected timeline for fully utilizing the remaining proceeds has been updated to start from January 21, 2025, extending the original three-year period from January 21, 2022[66] Business Strategy and Operations - The company continues to focus on its multi-platform strategy, selling products on platforms such as Taobao, JD.com, Pinduoduo, Xiaohongshu, and its own app[8] - The company aims to promote high-quality agricultural products and improve supply chain efficiency through direct cooperation with producers and local businesses[6] - The company has developed and launched 600 SKUs of self-operated products as of November 30, 2024, up from 488 SKUs in the previous fiscal year[15] - The company's main business is operating live e-commerce, selling self-owned products, and providing agency services[81] - The company completed the sale of its education business on March 1, 2024, as part of its business restructuring[83] - The company's operating segment is now solely focused on live-streaming e-commerce, following the termination of its education business[89] - The company's non-current assets are all located in China, and all revenue from continuing operations is derived from external customers in China[89] Other Income and Expenses - Other income, gains, and losses from continuing operations increased by 83.0% from RMB 62.3 million to RMB 113.9 million[31] - Interest income from continuing operations increased to RMB 42,545 thousand in 2024 from RMB 35,271 thousand in 2023[90] - Exchange gains from continuing operations rose to RMB 24,293 thousand in 2024 compared to RMB 9,274 thousand in 2023[90] - The company recorded a loss of RMB 7,566 thousand from the sale of a subsidiary in 2024[90] - Income tax expense for continuing operations decreased significantly to RMB 24,022 thousand in 2024 from RMB 124,929 thousand in 2023[91] Share Repurchase and Dividends - The company repurchased approximately 5,883,000 shares on the Hong Kong Stock Exchange during the reporting period, with a total consideration of HKD 98,742,235[61] - The company did not declare or pay any dividends for the six months ended November 30, 2024, consistent with the same period in 2023[100] Financial Assets and Liabilities - The fair value of financial assets at fair value through profit or loss (non-listed equity investments) decreased slightly from RMB 94,889 thousand as of May 31, 2024, to RMB 92,459 thousand as of November 30, 2024[101] - The company's financial products, classified as current assets, increased from RMB 1,250,338 thousand as of May 31, 2024, to RMB 1,688,489 thousand as of November 30, 2024, with expected annual returns ranging from 1.81% to 4.56%[101][102] - Inventory decreased from RMB 422,341 thousand as of May 31, 2024, to RMB 407,050 thousand as of November 30, 2024[103] - Trade and other receivables decreased significantly from RMB 893,582 thousand as of May 31, 2024, to RMB 241,899 thousand as of November 30, 2024, primarily due to the settlement of deferred consideration from the sale of the education business[104][105] - Contract liabilities increased from RMB 49,595 thousand as of May 31, 2024, to RMB 51,316 thousand as of November 30, 2024, driven by increases in membership fees and other services[106][109] - Trade payables decreased from RMB 611,886 thousand as of May 31, 2024, to RMB 492,253 thousand as of November 30, 2024, with the majority due within 90 days[111] Corporate Governance and Share Structure - The company completed a share subscription of 59,432,000 shares at HK$30.00 per share on December 24, 2020[114] - The report period refers to the six months ending November 30, 2024[118] - The company's fiscal year 2024 refers to the financial year ending May 31, 2024[114] - The company's fiscal year 2025 refers to the financial year ending May 31, 2025[114] - The company's board includes executive directors Yu Minhong and Yin Qiang, non-executive director Sun Chang, and independent non-executive directors Lin Zheying, Dong Ruibao, and Kuang Weixin[119] - The company's shares have a par value of US$0.00002 per share[118] - The company's GMV refers to the total value of merchandise sold[115] - The company's SKU refers to stock keeping units[118] - The company's application refers to software that enables computers, smartphones, or electronic mobile devices to perform tasks, particularly self-operated products and live e-commerce applications[114] - The company's audit committee is responsible for overseeing financial reporting and disclosure[114]

Investment Rating - Maintains a "Buy" rating for the company [5][6] Core Viewpoints - WeChat Mini Store could bring new opportunities for the company's development [1] - The company has undergone significant changes in business, logic, valuation, and expectations since the "small essay" incident [1] - The company has deeply refined its self-operated products, improved supply chain capabilities, and refined online marketing strategies [1] - Successfully completed the operational transition under the background of traffic switching, remaining an excellent product technology and cultural company [1] Competitive Advantages - Wide recognition, brand endorsement, and precise positioning [2] - WeChat e-commerce has strong social attributes, and the company has natural recognition and trust due to previous public opinion events [2] - Brand awareness may be stronger than pure cost-effectiveness in gift-giving scenarios, aligning with the company's brand philosophy of "health, high quality, and high cost-performance" [2] - The company has established and continuously improved its membership system, providing more favorable products and comprehensive services to customers [2] - Rich SKU matrix with high product category selectivity [3] - Unlike single-brand offerings, a wider product range helps capture more traffic conversion opportunities [3] - Since April 2022, the company has developed and launched 488 SKUs of self-operated products, expanding its product line to more categories (2023 fiscal year: 120 SKUs) [3] - Product categories have expanded from fresh food and snacks to more diversified product series [3] - Over 100 self-operated products have become top three bestsellers in their categories on Douyin [3] - The company focuses on discovering unmet consumer needs, establishing differentiated market positioning, building strong brand awareness, expanding market coverage, and continuously improving and expanding product categories [3] - Strong team execution resilience and keen judgment on opportunities [4] - The company quickly responded to the WeChat Mini Store's gift-giving feature, demonstrating adaptability and learning ability in a changing environment [4] Financial Projections - Expected FY25-27 revenues of 7.4 billion RMB, 8.4 billion RMB, and 9.6 billion RMB respectively [5] - Adjusted net profit attributable to the parent company of 330 million RMB, 540 million RMB, and 630 million RMB respectively [5] - EPS of 0.32 RMB/share, 0.52 RMB/share, and 0.61 RMB/share respectively [5] - Corresponding P/E ratios of 49x, 30x, and 26x [5] Industry and Market Data - Industry: Non-essential consumption/Media & Entertainment [6] - Current price: 16.78 HKD [6] - Total HKD shares outstanding: 1,035.77 million [6] - Total HKD market capitalization: 17,380.16 million HKD [6] - Net asset value per share: 5.30 HKD [6] - Asset-liability ratio: 24.03% [6] - 1-year high/low: 30.65 HKD/8.92 HKD [6]

Core Insights - Wei Xue, a prominent internet celebrity, has made a strong comeback in live streaming, achieving impressive sales figures [1][2] - In December 2024, Wei Xue ranked third on Douyin's influencer sales leaderboard, surpassing competitors like Dongfang Zhenxuan [2] - The majority of Wei Xue's sales come from skincare products, with significant contributions from brands like Yestar [2] Sales Performance - Wei Xue conducted 13 live streams in the last 30 days, averaging over 5 million viewers per session and generating sales between 25 million to 50 million yuan, totaling over 300 million yuan [1] - In December, her estimated monthly income from live streaming could reach between 60 million to 90 million yuan, based on typical commission rates of 20% to 30% for beauty products [2] - The Yestar brand, associated with Wei Xue, accounted for 97.5% of the total sales from related live streams in the past month [2] Background and Influence - Wei Xue is recognized as an "early internet celebrity," having gained fame around 2010 through her personal life and fashion sense [3] - Her unique aesthetic has influenced many young women seeking fashion trends during the early days of social media [3] Business Structure - Wei Xue claims to operate her live streaming business independently, but the actual ownership and management structure appears more complex [4] - The company associated with her, Hangzhou Xueying Fanxing Cultural Media Co., Ltd., is fully owned by Chen Kaiyao, with no direct ties to Wei Xue [4] - Wei Xue is linked to two companies, holding a 99.9% stake in Shanghai Xuexueya E-commerce Co., Ltd., while another company she controlled has been dissolved [4]

Core Insights - On December 27, Dongfang Zhenxuan celebrated its third anniversary by releasing the "Top Ten Self-operated Bestsellers" list, marking the first time the company disclosed detailed sales data for its self-operated products [1] Group 1: Sales Performance - The list revealed that Dongfang Zhenxuan's top-selling self-operated products include grilled sausages, eggs, milk, toast, jelly oranges, chicken breast, shrimp, pasta, pizza, and blueberry lutein ester gummies [1] - Grilled sausages achieved cumulative sales exceeding 230 million units, with total sales reaching 11 million orders [1]

Group 1 - Oriental Selection (01797.HK) experienced a significant stock price increase, rising over 15% at one point and approximately 12% at the time of reporting, with a cumulative increase of nearly 30% over the past two days [1] - The WeChat team announced on December 18 that the WeChat Store has officially launched a "Gift Giving" feature in a gray testing phase, which will support this feature for most products except for jewelry, education training categories, and items priced over 10,000 yuan [1][2] Group 2 - CITIC Securities highlighted that WeChat, being one of the most popular social applications in China, is introducing the "Gift Giving" feature as a new business model, which is expected to create vast opportunities for optional and emotional consumption [3] - Given WeChat's current market position, the spread of the "Gift Giving" feature is anticipated to exceed expectations, with the thematic interest likely to carry over into the new year [3] - Investment directions suggested by CITIC Securities include focusing on five key areas: retail merchants for certainty, and e-commerce service providers, brands, and advertising agency operators for flexibility [3]

Key Points **Industry/Company Involved**: * **Company**: Dongguan Media Internet (Dongguan) * **Industry**: Internet Retail, Live Streaming E-commerce **Core Views and Arguments**: 1. **Company Transformation and Strategy**: Dongguan is focusing on transforming into a product selection and technology company with a focus on live streaming e-commerce. They aim to become a product provider with a core of self-selected products and provide a pleasant cultural and spiritual experience to users. [2] 2. **Target Audience**: Dongguan's target audience is mainly white-collar workers in first and second-tier cities and middle-class families with children. Their needs are clear and they are willing to pay for quality products. [3] 3. **Customer Base Expansion**: Dongguan's customer base is expanding through various channels, including live streaming platforms, e-commerce platforms, and offline channels. They have also established a membership system to enhance customer loyalty. [5] 4. **Self-owned Products**: Dongguan is actively developing its self-owned product line, with over 500 SKUs currently available. They focus on high-quality, healthy, and cost-effective products. [10] 5. **Strategic Partnerships**: Dongguan is also exploring partnerships with third-party brands to offer a wider range of products to customers. [16] 6. **Innovation and Efficiency**: Dongguan emphasizes innovation and efficiency in its operations, aiming to provide continuous value to customers. [30] **Other Important Points**: 1. **Management Team**: The management team, led by Yu Tao, has a long-term vision for the company's development. They are confident in the company's future prospects and are committed to driving growth through various strategies. [3] 2. **Live Streaming**: Live streaming is a key channel for Dongguan's business. They are continuously improving their live streaming content and exploring new ways to engage with customers. [20] 3. **E-commerce Platforms**: Dongguan has established stores on various e-commerce platforms, including Taobao, JD.com, and Tmall. [5] 4. **Offline Channels**: Dongguan is exploring offline channels, such as automatic vending machines and pop-up stores, to expand its reach and brand visibility. [6] 5. **APP Development**: Dongguan is developing its own APP to provide a dedicated platform for its loyal customers. [8] 6. **Member Engagement**: Dongguan organizes member events and activities to enhance customer loyalty and engagement. [9] 7. **Challenges and Opportunities**: Dongguan acknowledges the challenges and opportunities in the market and is committed to adapting and evolving to meet changing consumer needs. [10]

Core Viewpoint - Sun Dongxu (Dongfang Xiaosun) has returned to the Dongfang Zhenxuan live streaming platform after nearly a year, generating significant viewer engagement and interaction during the live session [1][4]. Group 1: Return of Sun Dongxu - Sun Dongxu reappeared in the Dongfang Zhenxuan live streaming room on November 24, 2023, after being absent for almost a year [1][4]. - The live stream achieved 23.253 million likes and 40,000 viewers by 6:40 PM on November 24, ranking second on Douyin's sales leaderboard [1][4]. Group 2: Background and Controversy - Sun Dongxu was previously dismissed from his position due to the "small essay incident" that occurred in December 2023, which led to public criticism [2][5]. - Following the incident, Sun Dongxu issued an apology for his behavior during a live stream, which was deemed unprofessional [3][6]. - On December 16, 2023, the board of Dongfang Zhenxuan announced that Yu Minhong would take over as CEO, effectively removing Sun Dongxu from his roles [3][6].

Core Viewpoint - The return of Sun Dongxu to Dongfang Zhenxuan's live streaming platform marks a significant moment after his dismissal as CEO and executive director due to management issues related to the "small essay" incident [1][2][3]. Group 1: Management Changes - Sun Dongxu was removed from his position as CEO and executive director on December 16, 2023, due to poor management, which included inappropriate expressions during live broadcasts and breaches of privacy [2]. - The board of directors emphasized that Sun's departure was necessary to protect shareholder interests and allow more experienced directors to manage daily operations [2]. - On December 22, 2023, Sun Dongxu resigned from his position as a non-executive director, effective immediately [2]. Group 2: Company Response - Yu Minhong and Dong Yuhui addressed the "small essay" incident in a live stream, clarifying the reasons behind Sun's dismissal, which included management failures and the impact of live streaming conduct on the company's reputation [2]. - Yu Minhong reassured the public that Sun Dongxu would not leave Dongfang Zhenxuan, indicating a continued association with the company despite the management changes [3][4].

Core Insights - Douyin e-commerce reported significant growth during the 2024 "Double 11" shopping festival, with over 33,000 brands doubling their sales compared to the previous year, and nearly 17,000 brands experiencing sales growth exceeding 500% [1][3] - The platform's shelf e-commerce segment has gained traction, accounting for 42% of total sales, with "Super Value Purchase" sales increasing by 170% year-on-year [1][7] - The competition among e-commerce influencers has shifted, with notable changes in rankings, including the drop of Dong Yuhui's "Oriental Selection" from the top ten [2][4][5] Sales Performance - During the "Double 11" period, 111 e-commerce influencers achieved sales exceeding 100 million yuan, with 275 brands reaching over 100 million yuan in sales through live streaming [2][6] - The total sales for "Jiao Ge Peng You" surpassed 6.4 billion yuan, marking a 158% increase year-on-year, with over 7.14 million orders placed [4] - Xiaomi reported a record-breaking total payment amount of over 31.9 billion yuan during the "Double 11" event [5] Influencer Dynamics - The top three sales influencers on Douyin during "Double 11" were "Guangdong Couple," "Yu Hui Tong," and Jia Nailiang, with average transaction values of 345.6 yuan, 65.7 yuan, and 265.48 yuan respectively [3][4] - The absence of popular influencers like "Crazy Xiao Yang Ge" and "Dong Yuhui" impacted sales performance, leading to a competitive disadvantage for Douyin [5][8] E-commerce Strategy - Douyin has been focusing on enhancing its shelf e-commerce capabilities, with a reported GMV growth of 277% year-on-year for its shelf segment [7][8] - The platform is emphasizing content-driven marketing strategies, aiming to leverage high-quality content as a primary driver for business growth [8] - Despite the growth in shelf e-commerce, analysts caution that the overall growth rate of Douyin e-commerce is slowing, indicating potential challenges ahead [8]