Guotai Junan Securities: WeChat's "gift giving" feature accelerates the development of e-commerce and is expected to bring a new opportunity for consumer spending.

Guotai Junan Securities released a research report stating that the launch of the "gift giving" feature on WeChat Mini Stores is an important catalyst for the development of the WeChat e-commerce ecosystem. Channel transformation is expected to bring new consumption opportunities, with snack, cosmetics, and operation outsourcing companies expected to benefit first. Recommendations for holding shares include: 1. Snacks: Three Squirrels Inc., Yanker Shop Food, Jinzai Food Group, YouYou Foods, WL DELICIOUS, Chacha Food, Shanghai Ziyan Foods, Juewei Food Co.,Ltd.; 2. Cosmetics: Guangzhou Ruoyuchen Technology, CHICMAX, Yunnan Botanee Bio-Technology Group, Runben Biotechnology, Wanmei Group, Proya Cosmetics, GIANT BIOGENE. Beneficiaries: Qingmu Tec Co., Ltd. The "gift giving" feature on WeChat Mini Stores is expected to replicate the success of WeChat red envelopes, catalyzing the development of the WeChat e-commerce system. WeChat's ecosystem has a huge social flow, with a combined monthly active account of 1.382 billion for WeChat and WeChat as of 24Q3, significantly larger than platforms such as Taobao (900 million+) and Douyin (800 million+) in shelves and content e-commerce. Referring to the 2015 WeChat red envelope activity during Chinese New Year's Eve, which used the "shake" red envelope activity during the Spring Festival Gala to bind 200 million personal bank cards with a 500 million yuan investment in red envelopes (previously, only over 100 million bank accounts were bound to WeChat Pay and QQ Wallet accounts by the end of 2014), helping to rapidly popularize WeChat Pay, the launch of gift giving on WeChat Mini Stores is timely as Christmas, New Year's Day, and the Spring Festival are approaching. It is expected to use the rapid proliferation of gift-giving demands during the holidays to redirect user traffic to WeChat Mini Stores and cultivate shopping habits on WeChat. At the same time, the convenience of purchasing on WeChat Mini Stores is expected to help it further expand to some non-public domain e-commerce users, increase the coverage of e-commerce populations, and bring new channel opportunities to consumer brands. It is expected that brands will also actively introduce product combinations corresponding to the gift giving scenes to capture emerging channel opportunities. In the second half of 2024, the WeChat e-commerce ecosystem will continue to evolve, with WeChat Mini Stores expected to form a closed loop with WeChat's diversified content ecosystem, disrupting the e-commerce landscape. Since 2024, there have been frequent attempts in WeChat e-commerce, such as in August 2024, when WeChat supported merchants to upgrade their video stores to WeChat Mini Stores, allowing shop and product information to freely flow within multiple WeChat scenes such as official accounts, video accounts, mini-programs, and search, providing merchants with a broader marketing channel and traffic entry. In September, the admission threshold and deposit for merchants were significantly reduced, and a zero deposit trial policy was introduced; in October, the "WeChat Mini Store Assistant" app was launched; in November, the pace of upgrading video stores to WeChat Mini Stores accelerated, with merchants needing to upgrade to continue operations. As WeChat Mini Stores are unified as the e-commerce entry point, they are expected to combine with various WeChat content and user scenarios to form a diversified e-commerce model, such as social e-commerce with WeChat Mini Stores plus community explosion; shelf e-commerce with WeChat Mini Stores plus search; short video/live-streaming e-commerce with WeChat Mini Stores plus video accounts; and content e-commerce with WeChat Mini Stores plus official accounts. The launch of the gift-giving feature on Mini Stores is expected to become an opportunity for community explosion and lay a good user foundation for the long-term development of the WeChat e-commerce ecosystem. Channel transformation is expected to bring new consumption opportunities, with snack, cosmetics, and operation outsourcing companies expected to benefit. Considering the gift-giving scenes during the Double Festivals and Chinese New Year holiday, emotional new consumer categories with gifts and social attributes such as snacks and cosmetics are expected to benefit first from the "gift giving" feature on WeChat Mini Stores. For example, Three Squirrels Inc. has launched the new Hengyun Gift nuts gift box on its Mini Store; multiple brands in the cosmetics and personal care category such as Proya Cosmetics, Han Shu, Weinuo Na, Kefumei, Wanmei, and Zhanjia have layouts on WeChat Mini Stores and Tencent video accounts, and are expected to benefit from gift-giving products such as sets. In addition, e-commerce operation outsourcing companies are sensitive to the rise of new channels and new traffic and are also expected to benefit. Risk Warning: Downturn in industry sentiment; intensification of brand competition; new product performance falls short of expectations, etc.