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Source: China Securities

On the evening of July 25, Dongfang Zhenxuan announced that Dong Yuhui had "gone solo". The next day, Dongfang Zhenxuan fell sharply, closing at HK$9.5, down 23.39% in a single day. The market value evaporated by about HK$3 billion in one day. In addition, the stock has retreated more than 80% since its historical high last year. In the past month in the third quarter of this year, the stock price has also been nearly halved. As of the end of June, a total of 4 products from 3 fund companies held heavy positions in the stock.

Some institutions believe that since the "Yuhui Xingxing" live broadcast room only sells third-party goods, the revenue is recognized as the commission income corresponding to the sales volume. Therefore, although GMV has declined sharply, the impact on Oriental Selection's revenue is relatively limited.

The stock price nearly halved in the third quarter

On the evening of July 25, Dongfang Zhenxuan announced that Dong Yuhui "decided to resign as an employee of the company and as a senior management of a merged affiliated entity of the company." At the same time, Dong Yuhui planned to acquire 100% of the equity of Yuhui Tongxing for 76.5855 million yuan.

According to the data, Yuhui Tongxing Company was established in December 2023 and achieved a net profit of 141 million yuan from December 22, 2023 to June 30, 2024, while the net profit of Oriental Selection from June to November last year was 249 million yuan. Therefore, the news that Dong Yuhui went solo is undoubtedly a big negative for the share price of Oriental Selection. In the morning of July 26, the share price of Oriental Selection opened sharply lower, and the decline quickly expanded to more than 28%, hitting a new low since June 2022. As of the close, it fell 23.39% to HK$9.5, and the market value evaporated by about HK$3 billion in one day. In addition, New Oriental's US stocks also fell by 5.46%.

Previously, the company’s stock price, which was still called “New Oriental Online” at that time, once retreated by more than 90% due to the new education and training regulations. However, with the emergence of “Eastern Selection” and Dong Yuhui, the company’s stock price began to take off in June 2022, and the stock price soared from a low of HK$2.84 per share to a high of HK$75.55 per share in January 2023. In just half a year, the stock price increased by 26.6 times. In the first quarter report of that year, the proportion of public funds holding shares accounted for 4.66% of the outstanding shares. During the rise, Taikang Hongshi 3-month fixed opening, Yongying Hong Kong Stock Connect Quality Life Smart Selection and other funds held a large position in the stock, and the net value of the fund was also boosted. However, the company’s stock price subsequently fell quarter by quarter. As of the end of June this year, the proportion of public funds holding shares was only 2.1%. Two products under China Europe Fund, Bosera Fund and Yongying Fund each had a product holding a large position in the stock.

However, according to the fund net value disclosed after the market, the two products under China Europe Fund both rose slightly on the 26th, with Bose CSI Global China Education ETF falling 1.35% and Yongying Hong Kong Stock Connect Quality Growth One-Year Holding falling slightly by 0.59%.

Since entering the third quarter, in the past month or so, the share price of Oriental Selection has been declining from around HK$18.5. As of July 26, it has fallen by more than 48%, nearly halving, and has retreated by more than 85% from the historical high set in January last year.

Data shows that since Dong Yuhui started broadcasting "Walking with Hui" on January 9, as of July 19, the GMV of the "Walking with Hui" live broadcast room has accumulated to 4.38 billion yuan, accounting for 54% of the total GMV of Oriental Selection during the same period. Shenwan Hongyuan Research Report believes that since the "Walking with Hui" live broadcast room only sells third-party goods, the revenue is recognized in the form of commission income corresponding to the flow of goods, so despite the sharp decline in GMV, the impact on Oriental Selection's revenue is relatively limited. "We expect that the sales of Oriental Selection's self-owned products will continue to grow, with GMV increasing by 5% year-on-year, corresponding to sales revenue of 5.44 billion yuan, and the proportion of revenue increased by 49.5 percentage points year-on-year to 87%." The research report stated.

Hong Kong stocks continued to increase in the second quarter

Although the stock price of Oriental Selection has fluctuated greatly in recent years, making public funds stay away from it, as the bottom of Hong Kong stocks has gradually consolidated, many fund managers have decisively increased their holdings in Hong Kong stocks, which are in a low valuation. According to statistics, at the end of the second quarter of this year, the public fund industry had a total of 313 Hong Kong stocks with a total holding value of more than HK$237.7 billion, an increase of HK$38.814 billion from the previous quarter.

There are also many star fund managers who have increased their holdings. For example, the Hong Kong stock position of Ruiyuan Growth Value managed by Fu Pengbo further increased to 23.63% in the second quarter, and the top ten holdings include China Mobile, Tencent Holdings, and Hygeia Medical. The Hong Kong stock holdings of Ruiyuan Balanced Value under the same company Zhao Feng in the second quarter accounted for 43% of the fund's net asset value. Its heavily held Hong Kong stocks include Tencent, China Mobile, China Pacific Insurance, Meituan, and China Property Insurance. Top fund manager Zhang Kun also continued to increase his Hong Kong stock positions. The Hong Kong stock position of E Fund High-quality Enterprises Three-Year Holding, which he manages, increased from 38.98% at the end of last year to 46.71%.

Qiu Dongrong, who recently resigned, said in the second quarter report that the overall valuation level of Hong Kong stocks is basically at the historical 20th percentile and still has a very high cost-effectiveness; and some companies are scarce and are the most dynamic and innovative assets in the Chinese economy.

"Hong Kong stock assets show systematic undervaluation characteristics, and the implied return level of equity assets is high, which corresponds to strategic opportunities and should be actively allocated," said Qiu Dongrong.

The Yongying Hong Kong Stock Connect High-quality Growth One-year Mixed Fund managed by Yan Qing of Yongying Fund, which is heavily invested in Oriental Selection, believes in the power of stock market cycles. Domestic defensive dividend assets have gone out of a stable upward trend, while core growth assets have undergone years of adjustment and their valuations are at a historically low level. We need to wait patiently for more stabilization signals.

Looking ahead to the second half of 2024, Franklin Templeton Investments expressed cautious optimism about the Hong Kong stock market, mainly based on the following considerations: First, the overall market valuation is low, and many companies have high investment value. Considering the low probability of a sharp decline, these values ​​will be recognized by the market in the medium and long term. Second, overseas liquidity has changed. Canada and Europe have begun to cut interest rates, and the year-on-year growth rate of the US consumer price index has also begun to decline. The Federal Reserve may cut interest rates in 2024, but considering the US election, US inflation in 2025 is still uncertain. Third, the domestic economy is expected to be stable and improve, and GDP is expected to maintain a healthy growth rate throughout the year. Monetary policy may remain loose, and fiscal policy is also expected to be strengthened; semiconductors, new energy, electric vehicles, high-end manufacturing and other industries will still receive policy support, and more favorable policies are expected to be introduced. Fourth, given the low profit base in the second half of 2023, it is expected that the year-on-year growth rate of corporate profits will improve in 2024.

Editor: Chen Lixiang

Proofreading: Wang Jincheng