SATURDAY CO LTD(002291)：GMV DOUBLES YOY DURING 618 SHOPPING FESTIVAL;SYSTEMATIC CAPABILITIES TO BOLSTER PROFIT GROWTH

　　What's new
　　YOWANT Network, a subsidiary of Saturday Co Ltd, released its sales report during the 618 (June 18) Shopping Festival in 2022. Gross merchandise value (GMV) during the 618 event (May 20-June 18) rose nearly 100% YoY to exceed Rmb1.6bn; number of orders grew 133% YoY to 20.38mn; 459 livestreaming e-commerce shows were held with a total of 530mn viewers; 5 livestreaming studios recorded daily sales of over Rmb100mn, and 30 studios recorded daily sales of over Rmb10mn.
　　Comments
　　Sales performance of top live streamers impressive; replicable business model accelerates incubation of live streamers. During the 618 event, GMV of three livestreaming e-commerce shows by top celebrity live streamer Mr. JIA Nai Liang reached Rmb342mn or about 21% of the total GMV, and the number of viewers was 73.57mn, accounting for about 14% of the total. With the support of the YOWANT cloud system, top live streamers improved their shopper conversion efficiency. The firm entered into partnership with celebrity live streamers YANG Zi and HUANG Shengyi in May, and GMV of their shows reached Rmb151mn or 9% of the total GMV during the 618 event. Daily GMV on June 18 ramped up to Rmb128mn. We believe that the firm has established a proven business model to significantly accelerate the incubation of celebrity live streamers by leveraging their follower base. We think the firm’s tiered live streamer structure and replicable business model to bolster sustainable GMV growth.
　　Systematic livestreaming procedures improve efficiency, bolstering capacity expansion. The firm launched the YOWANT cloud system in 4Q21 to empower standardized systematic livestreaming procedures. In terms of product selection, the firm maintains a database of high-quality products and monitors the conversion efficiency, delivery and user experience of products. In this way, the quality of products selected by the firm keeps improving. In terms of operation, the firm has standardized more than 100 livestreaming procedures, creating a simple and replicable business model. Moreover, the well-established back-end support helps reduce the firm's reliance on live streamers. We believe that the firm’s standardized livestreaming procedures and refined management will continue to improve its efficiency and bolster capacity expansion at low marginal costs.
　　Focusing on cost control and profitability improvement. The firm’s livestreaming e-commerce business revenue is mainly from promotional services. We estimate that the firm charges a commission at a rate of about 20-25% of the GMV of actual sales excluding the returned products. The firm’s costs mainly include traffic acquisition cost and rollout of gifts, profit sharing with live streamers and operating cost. Specifically, we see economies of scale in operating costs thanks to technology-enhanced efficiency. We believe that the firm’s traffic acquisition cost may drop as a stable business model takes shape after a year of partnership with Douyin, as well as the influence of the firm’s top live streamers improves. For livestreaming cost, celebrities are entitled to a proportion of operating profits, and the cost is higher than the GMV-based commission of top live streamers. Given the rapid ramp-up of the firm’s celebrity partners, we expect the proportion of livestreaming cost in revenue to rise modestly. Overall, the firm is paying more attention to profitability in 2022 and enhancing control over product selection and commission rates. Moreover, the growth of operating costs is slowing thanks to economies of scale. We are upbeat on the firm’s profit growth in 2022.
　　Financials and valuation
　　We maintain our earnings forecasts and an OUTPERFORM. We lift our TP 22.2% to Rmb22, implying 32x 2022e and 21x 2023e P/E with 31.1% upside, due to easing COVID-19 impact and rising market risk appetite. The stock is trading at 25x 2022e and 16x 2023e P/E.
　　Risks
　　COVID-19 resurgence; divestiture of footwear business disappoints; tighter regulations on livestreaming e-commerce.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。