Investor Zhang Jiahao: Yu Minhong's Big Chess Behind the East Selection Store Closure Storm

Recently, the "Eastern Selection" store closure scandal has sparked heated discussions.

In the afternoon of July 26, Tiktok's live broadcast room "Oriental Selection Self operated Products" issued a notice of suspension: "Due to the requirements of the rules, the stores of Oriental Selection Self operated Products and the live broadcast room of Oriental Selection Self operated Products will be closed for three days from July 26 to 29."

During the live broadcast that night, Sun Dongxu, CEO of Dongfang Selection, stated that the shutdown was very sudden. After the small yellow car was suddenly towed away that afternoon, the self operated products could not be sold for three consecutive days. In addition, in order not to affect the customer's consumption experience, Dongfang Selection has temporarily decided to offer a 85% discount promotion on the app. Users who have purchased products in the past few days can contact customer service to make up for the price difference.

On the afternoon of July 30th, the official Weibo account of "Dongfang Zhenxuan" issued a notice of suspension for its various accounts.

Looking back at the development process of Yu Minhong and his New Oriental over the past two years, it can be described as a "roller coaster".

In 2021, after the implementation of the dual reduction policy, the entire education and training industry suffered a "catastrophic disaster", and New Oriental and Yu Minhong also faced their biggest downturn in life. New Oriental's market value fell by 90%, and the company's revenue decreased by 80%.

In the first quarter of 2022, the stock price of New Oriental fell below one dollar. Amidst the industry's negative news, a mysterious investor, Zhang Jiahao, who is known as the "Capital Commander in Chief", bought the US stock of New Oriental with his investment fund.

After the recent shutdown of Oriental Selection, the industry has been talking about the relationship between Oriental Selection and Tiktok. Some people think that Tiktok is knocking on the mountain and shaking the tiger, which is due to the action of the East to select "independent". In response, the reporter interviewed Zhang Jiahao, Chairman of the European and American China Investment Promotion Association.

Why did New Oriental invest in it in the opposite direction when it hit the bottom in 2022?

Zhang Jiahao said, "I often say that there are three elements to investing - policies, trends, and people. When I invested in New Oriental, the US stock market, more than a year ago, everyone didn't understand why I wanted to invest in a company whose stock price had fallen below one dollar, with losses of hundreds of millions of dollars, and its main business had been cut off by more than half. In fact, the decision to invest in New Oriental was made based on my analysis of policies, trends, and people. As a pioneer in the education and training industry, Yu Minhong has many years of successful business operation concepts and experience, and has formed a national leading team. In terms of dealing with the underlying logic of problems, he is also commendable. With all the elements of success, what is needed is a transformation of the business model.

To invest in the right company at the right time, it is even more necessary to understand the human nature of the capital market and the "executors" behind the company. Find stocks that are undervalued by the market, understand whether they truly represent the true state of the enterprise, speculate on the future development potential of the enterprise, and then invest heavily in them. Time will provide the desired results. After I bought the US stock of New Oriental for $1, New Oriental began to transform and enter the e-commerce market. In the six months from June to November 2022, Dongfang Zhenxuan's six live streaming rooms achieved a total GMV of 4.8 billion yuan, with live streaming e-commerce revenue exceeding 500 million yuan, contributing 85% of New Oriental Online's revenue in the past half year. Since the selection of Dongfang, New Oriental's stock price has risen nearly 50 times in a year.

Zhang Jiahao said: "Investment is not based on feelings, but on a professional foundation combined with precise prediction based on systematic thinking, with a clear insight into the forces driving world progress and change. Therefore, with a sufficiently broad historical perspective and an ultra long perspective, it can help us control the long-term development rules of things and predict the future more accurately. In addition to New Oriental, in 2019, I also made an investment layout for Tesla based on a comprehensive consideration of policy, trends, and people in the US stock market.

The weakness of traditional car manufacturers lies in low single car profits, with almost no subsequent profits. But Tesla is like a big iPad, it conforms to Moore's Law and costs can be reduced faster. The main source of income is not only from selling cars, but also from selling services and software. So we cannot apply the business model and profit margin of traditional cars to Tesla. In trend investment, judging the future value of technology companies is crucial, so once investors see the space for the future, the PE of technology companies will be high. Therefore, in May 2019, I entered the US stock market Tesla for $196.63 and cleared my position for $1672.53 in August 2020. The reason for choosing to exit after holding for one year is also based on the judgment of the trend. 40 times PE is already a high growth enterprise, but Tesla has reached a maximum of 150. It is indeed high, but good technology companies will gradually lower their PE over time. Later developments also confirmed my initial judgment, and Tesla's P/E ratio returned to 47.30.

Zhang Jiahao also stated that the underlying logic of investment in A-shares and US stocks is similar, but the strategy and tactics are completely different. There are more dimensions to consider when investing in A-shares. The "Five Dimensional Thinking - Industrial Thinking, Financial Thinking, Political Thinking, Social Thinking, and Human Thinking" that I advocate for in the A-share market and the primary market will make decision-making more stable, rational, and multidimensional. Based on mature models and rational research, actively seeking opportunities to evaluate the business, environment, people, and organization behind a stock has a deep underlying logic. Able to conduct three-dimensional analysis from the policy level, trend level, and character level, and conduct multidimensional collection of information points, grasp the main contradiction points of market changes, and allocate time and capital effectively.

For example, the investment in Kweichow Moutai and Dawn is a decision based on five dimensional thinking.

Zhang Jiahao said: Only by truly understanding the path of value investment, truly understanding a company, and looking into its huge growth potential in the next 5 years or even longer, can we firmly grasp it and ultimately reap big profits. Stimulating consumption and stimulating domestic demand is a long-term policy. Baijiu is an active part of the consumption track. With the strengthening of Maotai brand barriers and the increase of long-term capital pricing power, the valuation is further improved with long-term value. However, the contradiction between supply and demand is still the strongest logic. Under the leading benchmark effect of Maotai, the Maotai brand is growing rapidly, and the indicators such as capacity, income and profit may be further improved. Maotai is not only a consumer product. The quality of well-known brands and Zhuoyue endows it with a strong social attribute. The longer it lasts, the greater its collection value and investment value will be. This is not what other Baijiu brands do, but also the most important attribute of Maotai - financial attribute. In October 2017, I entered the position at the share price of 513 yuan in Kweichow Moutai, and have held it so far, with a return of more than 300%.

Since the outbreak of the epidemic in 2020, I have been focusing on and analyzing the "relationship" between leading stocks in various industries and the epidemic, and have keenly predicted that masks will become a necessary product under the new normal of the epidemic, and mask manufacturers across the country will show geometric growth. Melt blown fabric is the most core material for masks. At present, the supply and demand relationship between melt blown fabric and mask production is severely unbalanced, and the social and market demand for melt blown fabric will show explosive growth. As the first stock of the "mask concept" with the largest increase in A-shares, Dawn Holdings has attracted various hot money to gather and speculate in the short term. Shareholders have also taken advantage of the high stock price to launch a reduction plan. With the effective control of the epidemic, future orders will gradually decrease. Based on the judgment of five dimensional thinking, I foresee that this is a phased concept that must be fast-paced in epidemic prediction, shareholder and hot money operations. So on January 21, 2020, a share of 11.42 yuan was invested in Dawn Shares, and it was precisely sold and cleared at the high point of 58.18 yuan per share on March 9, 2020, with an investment return of over 5 times.

In the field of investment, I have always adhered to the "five dimensional thinking - human nature thinking, social thinking, political thinking, industrial thinking, and financial thinking". It is necessary to have a correct interpretation of policy trends, as well as precise control of human nature and market emotions, to find stocks that have been undervalued by the market, to make large purchases at the appropriate time, and to accurately copy the bottom. I believe in value investment while also implementing strict risk management, This is also the principle I have always adhered to, which is' do less, do the right thing, and do big things'. As Duan Yongping said, the general rule of stock market investment is: the more you invest, the less you earn, or the more you lose.

How much impact will the shutdown storm have on New Oriental, which is transforming into an e-commerce company?

Zhang Jiahao said: If Yu Minhong only turns Dongfang Zhenxuan into a live streaming e-commerce company, it would underestimate his pattern and vision. He aims to build Dongfang Selection into an ecological enterprise that integrates e-commerce, culture and tourism, agriculture, education, etc., laying the strategic development direction for New Oriental for the next 10 to 20 years.

Zhang Jiahao said: In 2018, the country successively established the Ministry of Agriculture and Rural Affairs, the Ministry of Culture and Tourism, which demonstrated the importance of agriculture, rural areas, and cultural tourism at the national level. Yu Minhong is a person who understands the trend, whether it is the transformation of e-commerce after the dual reduction policy. Later, in response to the call of the Three Rural Policies, Eastern Selection used the advantage of knowledge to enter the three rural areas, and further combined agriculture, rural areas, and cultural tourism industries with the "Eastern Selection Looking at the World". Following the trend of national policies in layout, every step taken by Eastern Selection in the past two years has achieved favorable timing, location, and people.

If Dongfang Zhenxuan's focus on live streaming sales in the agriculture, rural areas, and farmers is the first opportunity to borrow momentum, then this year's focus on live streaming content in the cultural and tourism field is the second opportunity to borrow momentum. Eastern Selection collaborates with cultural and tourism departments in various provinces, and Yu Minhong leads his team to open live streaming sessions in Heilongjiang, Shanxi, Gansu, and other places. This not only brings billions of yuan of traffic to local cultural and tourism industries to promote economic recovery, but also enables low-cost and efficient integration of agricultural product supply chains with the support of local governments, taking the opportunity to prepare for entering the cultural and tourism industry, This top-down "taking advantage of the situation" success has ushered in the second magnificent transformation of Eastern Selection.

This shutdown incident is only a necessary path towards independence. In 2022, when the Oriental selection was hot, Yu Minhong, as the helmsman, once said on his personal official account that New Oriental Online, with Hong Kong listed companies as the main body, created the Oriental selection live broadcast sales system and transformed it into an e-commerce platform with agricultural product screening and sales as the core. In addition to Tiktok, other places will also be considered; We will also build our own product system at a faster pace, similar to NetEase's strict selection.

Yu Minhong once said that the bustling business model established based on external platforms has strong fragility, and we still have a long way to go to consolidate the foundation of long-term development. He said, "We don't pay attention to the excitement of the moment, but rather focus on long-term development. Subsequently, Dongfang Zhenxuan launched a WeChat mini program, opened a video account, and deployed it on platforms such as JD and Tmall. In August 2022, Dongfang Zhenxuan launched independent apps in major mobile app stores.

In early July of this year, Dongfang Zhenxuan took another small step towards independence, launching its first live streaming activity on its own app from July 5th to 9th. At that time, Yu Minhong said that the Oriental Selection and Tiktok Platform were mutually successful, without any contradiction or conflict. Creating one's own platform is a normal behavior for a company to make progress. We hope everyone does not interpret it too much.

In my opinion, Dongfang Zhen's self built app has in a sense reached the bottom line of being challenged that super platforms can tolerate. In the eyes of the platform, the traffic and users of the platform have helped the institution become a phenomenon level live streaming e-commerce company. But now institutions are jumping out and building their own channels, which inevitably leads to resistance.

How to View Oriental Selection as a "Self established Portal"

Zhang Jiahao said: Maybe many people are suspicious of the self built platform of Oriental Selection and think it is difficult to succeed without the support of the content and traffic of the big platform, but the reality shows that Oriental Selection can still live well even without the big tree of Tiktok.

The promotion of "85% discount on all self operated products" has attracted hundreds of thousands of people to rush into the APP live streaming room. On July 27th, Dongfang Zhenxuan once reached fifth on the IOS free shopping list, and as of 10:30 pm, the total GMV had exceeded 30 million. This figure has already accounted for 77% of the sales of the Tiktok studio, which selects its own products.

It has been proved that the platform users who have turned from Tiktok to Oriental Selection have strong loyalty and stickiness. The key for Oriental Selection to maintain the long-term development of the platform lies in "content and low price". On the one hand, the process of knowledge delivery itself is a process of outputting content. "Oriental Selection sees the world" leads users to travel across rivers and rivers, assuming the function of content creation. Therefore, Oriental Selection does not lack high-quality content. On the other hand, Oriental Selection has tens of millions of fans on Tiktok, which has generated strong loyalty in the early stage. It will be easy to obtain users of the new platform. In addition, Oriental Selection has strong supply chain capabilities, and the product strategy of low price, high frequency, rigid demand and quality will actively attract users.

So, it is natural for Dongfang Zhen to choose a self built platform, and once it runs, it will be in a considerable profit state. At present, the important criterion for measuring the success of the Oriental Selection Platform is its monetization ability, rather than pursuing the scale of platform users. The most important thing to do is to first verify the reasonable feasibility of the entire business model.

In addition to the various considerations mentioned above, Yu Minhong's self built "Oriental Selection" e-commerce platform is also based on the considerations of the capital market. If you are only a live broadcast e-commerce company or an entity company, the company's valuation will be greatly discounted. However, once you transform into a platform based ecological chain company of "Internet plus+technology+content+industrial chain output", the valuation model will change substantially, and there will be more room for imagination, which will eventually be reflected in the growth of market value.

Zhang Jiahao finally stated that the most valuable thing is still Yu Minhong's entrepreneurial spirit. He was able to face setbacks in his golden age and personally practice what he said, "seeking hope in despair." Praising him as an unstoppable entrepreneur is not an excessive praise. This store closure incident is just a small interlude on the road to greatness. Yu Minhong is playing a big game of chess, and the future of Eastern Selection is foreseeable.