Shenwan Hongyuan Group: Maintains "neutral" rating on EAST BUY (01797) with target price raised to HK$13.9.

Shenwan Hongyuan Group released a research report stating that it maintains a "neutral" rating for EAST BUY (01797), raising the revenue for the years 25 to 27 to 47.2/50.4/54.5 billion RMB, and raising the target price to 13.9 Hong Kong dollars (previously forecasted at 11.9 Hong Kong dollars). Due to the company's active promotion of a multi-live broadcast room, multi-anchor strategy, the company's GMV has begun to recover after the separation of the "Yuhui Tongxing" live broadcast room. Due to one-time expenses such as bonus incentives generated from the separation of the "Yuhui Tongxing" live broadcast room, the bank has lowered the adjusted net profit for the year 25 to 2.45 billion RMB. Due to the business adjustment leading to improved operational efficiency, the bank has raised the adjusted net profit for the years 26 to 27 to 3.82/4.4 billion RMB. Key points from Shenwan Hongyuan Group: The bank expects EAST BUY's revenue for the first half of fiscal year 25 to be approximately 2.4 billion RMB, a year-on-year decrease of 14.1%; and the adjusted net profit attributable to the parent of 0.64 billion RMB, a year-on-year decrease of 87.3%. The year-on-year negative growth in revenue and profit is mainly due to the separation of the "Yuhui Tongxing" live broadcast room. The separation of the live broadcast room affects both sales revenue and profit, leading to a significant year-on-year decline in profit due to one-time expenses such as bonus incentives for Dong Yuhui. The separation of the live broadcast room affects GMV growth, and WeChat mini-programs may become the incremental source. The company announced the sale of the Yuhui Tongxing live broadcast room on July 25, and the departure of Dong Yuhui. Since the launch of the Yuhui Tongxing live broadcast room, as of July 19, 24, the cumulative GMV of the room reached 43.8 billion RMB, accounting for 54% of EAST BUY's total GMV in the same period (total GMV of EAST BUY in the same period was 81.7 billion RMB). Although the company included the sales revenue of the "Yuhui Tongxing" live broadcast room for the months of June and July in the first half of FY25, business adjustments still caused GMV to decrease by nearly 5.1% to 54.1 billion RMB. After the separation of the "Yuhui Tongxing" live broadcast room, the company has restructured its business development strategy, promoting a multi-live broadcast room, multi-anchor growth model, adding new live broadcast rooms for apparel, fresh produce, etc., cultivating new anchors, and refining fan demands. GMV from Douyin in the months of August to November was 4.59, 4.72, 5.7, and 7.2 billion RMB respectively, as the company's GMV began to gradually recover. The company is also actively setting up WeChat mini-programs to make it another important part of the shelf e-commerce model. GMV from WeChat mini-programs in FY24 accounted for only 1% of the total GMV. Whereas GMV from platforms such as Taobao, JD, etc., accounted for about 13% of the total GMV. The increased sales volume from WeChat mini-programs in the future will help boost the company's GMV. The increase in expenses is due to business adjustments, and the company will adopt a lean approach in the second half of the year. Due to the separation of "Yuhui Tongxing," the company has given Dong Yuhui a personal reward of 140 million RMB, therefore, the expenses related to the separation of the live broadcast room will be included in the profit and loss statement for 1HFY25. After the separation of "Yuhui Tongxing," the bank expects that the competitive situation among the various live broadcast rooms of the company will be significantly alleviated. Therefore, the pace of marketing expenditure will be more controllable, thus driving operational efficiency recovery. The bank estimates that excluding one-time impacts such as rewards, the company's profit margin for 1HFY25 will rebound to 6.7%, an increase of 1.3 percentage points compared to the second half of last year.