According to the research report issued by BOCOM International, after the 'Small Article' incident, the main account of Eastbuy, 01797, experienced a brief decline in the number of followers, but has now stabilized at around 30 million. This does reflect the pressure of increased traffic growth, and the long-term development of the company's circle expansion is facing challenges. After Huitongxing went online, from February to March, the GMV of the Eastbuy main account's live broadcast room (excluding shelf sales) dropped to 200-300 million yuan (RMB, the same below), and has now stabilized on a month on month basis. On the one hand, the decline in main account data reflects the pressure of traffic growth, and on the other hand, it also reflects the impact of being diverted by the matrix accounts. The estimated average daily GMV is about 10 million yuan (including the sales amount of the shelf).

The bank predicts that the company's profit margin may bottom out in the third quarter of the 2024 fiscal year (as of February 29, 2024). The third quarter of the 2024 fiscal year is a stage of strategic adjustment for the company, with an increase in promotion efforts for its own-brand products leading to a decline in the gross margin of self-owned products. After the Spring Festival, operations gradually returned to normal pace, and the promotion of special live broadcasts became more active. It is expected that the company's profitability in the fourth quarter will be improved compared with the third quarter. However, considering that the short-term goal for self-owned products is still scale expansion, there is still uncertainty in investment efforts.

According to the bank, Eastbuy's strategic focus on self-owned product construction is still in the early stages, and the growth of main account traffic and contributions from Taobao channels still need to be observed. Instant retail and overseas new businesses are also in early stages. The bank predicts that the company's revenue will increase by 45% / 13% to 6.6 billion yuan / 7.4 billion yuan in the 2024/2025 fiscal year; adjusted net income will be 690 million yuan / 840 million yuan, a decrease of 37% / 23% compared with the fiscal year 2023's 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 P/E ratio is 16 times, and it gives a valuation of HKD 14.5 billion based on adjusted net income of RMB 840 million in the fiscal year 2025, corresponding to a target price of HKD 13.40. The bank is bullish on its self-owned product strategy and believes that it has better profit margins and business ceilings compared to other MCN institutions, thus enjoying valuation premium. However, considering the uncertainty of short-term profit margin trends and recent adjustments in business strategy management, the current price already reflects the potential for short-term business growth, hence the neutral rating.