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Investor Network - Ge Fanmei

As a former well-known anchor of Oriental Selection (1797.HK), Dong Yuhui's relationship with Oriental Selection has attracted much attention from the market. The separation of Dong Yuhui and Oriental Selection has once again caused an uproar in the market.

On the evening of July 25, Oriental Selection announced on the Hong Kong Stock Exchange that Dong Yuhui has decided to no longer serve as an employee of the company and a senior management of a merged affiliated entity of the company, effective July 25.

Perhaps affected by this news, on July 26, Oriental Selection opened with a drop of more than 25%, and closed at HK$9.5 per share that day, a daily drop of 23.39%, with a total market value of HK$9.797 billion.

At the same time, Oriental Selection sold Yuhui Tongxing to Dong Yuhui. After the transaction is completed, Oriental Selection will not hold any shares in Yuhui Tongxing. Research institutions believe that the sale of Yuhui Tongxing is expected to affect Oriental Selection's profit by more than 20% in fiscal year 2025.

In order to boost market confidence, Oriental Selection also announced that based on the authorization of the shareholders' meeting, it will repurchase no more than 500 million yuan of shares in the next year.

The unbundling of Dong Yuhui and Oriental Selection

On July 25, an announcement from Oriental Selection announced that Dong Yuhui had resigned from Oriental Selection, causing an uproar on the Internet.

According to the announcement, Dong Yuhui resigned from Oriental Selection, and Oriental Selection will pay the promised benefits and compensation, and seek approval from the board of directors and the remuneration committee to reward Yuhui with all the net profits of Yuhui Xingxing. In the first half of 2024, Yuhui Xingxing's net profit was 140 million yuan.

At the same time, Dongfang Zhenxuan's wholly-owned subsidiary, Yuhui Xingxing, will be officially separated from Dongfang Zhenxuan, with Dong Yuhui personally holding 100% of its shares. The sale will be completed within 6 months from the date of the agreement (July 25). Upon completion, Yuhui Xingxing's financial results will no longer be consolidated with the company's consolidated statements.

Previously, Dongfang Zhenxuan held 100% of the shares of Yuhui Tongxing, and the income of its account was included in the company's financial report. After independence, Dong Yuhui held 100% of the shares, and the sale price was 76.59 million yuan, which was the same as the net asset value of Yuhui Tongxing, so there was no income or loss.

In order to ensure the normal operation of Yuhui Tongxing's business, Dongfang Zhenxuan, with the approval of the board of directors, will deliver the developed information system to Yuhui Tongxing free of charge.

The intellectual property rights related to Yuhui Xingxing's registered trademarks, copyrights, brand names, etc. were deemed to have no significant value because they were not expected to bring economic benefits to Oriental Selection after Dong Yuhui's resignation.

Oriental Selection believes that the brand is closely linked to Dong Yuhui's personal intellectual property rights and it will be difficult to continue operating after Dong Yuhui's departure. Therefore, the sale is in the best interests of the company and shareholders.

On the afternoon of July 26, Dongfang Zhenxuan held a shareholder communication telephone conference. Yu Minhong, the founder of New Oriental, said at the shareholder communication meeting that Dongfang Zhenxuan provided full support in the development of Yihui Xingxing. After Yihui Xingxing left, it can develop independently, and I believe Dong Yuhui will do well.

Yu Minhong said that in this way, the two companies would have less involvement, the internal and external conflicts of the company as a whole could be reconciled, internal conflicts and external forces would be resolved at one time, and there would be no need to worry about the pressure and pain brought by external public opinion.

Loss of core assets?

Public information shows that Dong Yuhui joined Oriental Selection in 2019, and since 2021, he has accompanied Oriental Selection in its transformation from an online education provider to a self-operated product and live streaming e-commerce platform.

According to the "Open Letter to Shareholders and Friends of Oriental Selection" released by Yu Minhong on the evening of July 25, after the establishment of Yuhui Tongxing Company, Dong Yuhui was given an attractive guaranteed income (cash + equity). In addition to the full guaranteed income, if Yuhui Tongxing has profits, Dong Yuhui can continue to receive half of the net profit of Yuhui Tongxing.

After Yuhui Tongxing Company was registered, Dongfang Zhenxuan vacated more than 1,000 square meters of office space for Yuhui Tongxing, reorganized a mature team of about 60 people, and provided a sales system, pallet supply and a large amount of equipment and facilities support.

According to the disclosed financial data, from the start of broadcasting in January 2024 to June 30, the GMV of Youhui Xingxing was approximately 3.5 billion yuan. Based on a commission rate of 13%, the revenue contribution was approximately 410 million yuan, the profit was 140 million yuan, and the profit margin was 33%.

Now, after selling Yuhui Tongxing, Dongfang Zhenxuan said it will reallocate resources, strengthen its own brand building, expand its self-operated products and live streaming e-commerce business to better meet consumer needs.

Yu Minhong said that Dong Yuhui's influence is huge, and establishing an independent platform is an inevitable choice. In the future, there will be no more cases of establishing an independent platform for anchors.

Yu Minhong also said that in the future, he will give Dongfang's selected anchors good enough treatment, build the anchors into an excellent team, and provide guidance and support for the development of the anchors. After this round of fluctuations, the existing anchors have matured. Recently, he has arranged for the anchors to participate in a series of activities to showcase their talents and abilities, and personally led the anchors. In the future, he will discover more outstanding anchors to promote the development of the company.

On July 26, on the Douyin platform, the number of fans of the Oriental Selection live broadcast room reached 29.845 million; the number of fans of Yuhui Xingxing has reached 21.734 million.

Currently, there is fierce competition among live streaming companies. According to Qichacha data, there are 1.7886 million live streaming related companies in China. The live streaming industry has been booming in the past decade. The number of registered related companies has continued to grow steadily from 8,300 in 2014 to 32,100 in 2019, with a growth rate of about 35%.

Yu Minhong said that although the cooperation with Douyin is wonderful, it is still not a stable structure. He revealed that Dongfang Zhenxuan already has its own APP, which is not big, but has more than 200,000 members, and will continue to expand its influence in the future.

In addition, according to Yu Minhong, Oriental Selection is trying to explore a model that combines online and offline methods, and will rely on New Oriental's more than 800 teaching points to open physical stores, such as membership stores.

Regarding the impact of the sale of Yuhui Tongxing on Dongfang Zhenxuan, Bocom International believes that if the commission income from Yuhui Tongxing's live broadcast room is excluded from the forecast, and Dongfang Zhenxuan's self-operated products and other matrix account strategies remain unchanged, the GMV, revenue, and profit are expected to be reduced by more than 34%, 9%, and 20% in fiscal year 2025. The sale of Yuhui Tongxing will have an impact on the company's short-term financial performance, but the risk of public opinion may be reduced. After stabilization, the management can focus on developing self-operated strategies and multi-platform development, or achieve stable operations in the long term. (Produced by Siwei Finance) ■

Oriental Selection