Incident: The company released its semi-annual report for 2023. 2023H1 achieved revenue of HK$1,003 million, YoY +80.31%; realized adjusted net profit of HK$58 million, yoY +16.06%, and adjusted net interest rate of 5.79% (YOY-3.21pct); 2023H1 achieved adjusted EBITDA of HK$181 million, YOY +38.87%, with an adjusted EBITDA rate of 18.08% (yoy-5.40pct).

Subscription services have been greatly expanded, and value-added services have grown rapidly. 1) Subscription services: 2023H1. The company's subscription service revenue reached HK$467 million, an increase of 131.4% over the previous year, accounting for 46.6% of total revenue. After acquiring Particle Technology, the company further improved its ability to connect with mainstream content platforms, created independent product packages and realized user subscriptions through channels such as telecom operators, radio and television new media, and Internet platforms, and provided integrated video cloud services such as smart operation, providing solutions for DTC business and continuously empowering large-scale content-side customers transitioning to streaming platforms. 2) Value-added services: 2023H1. The company's value-added service revenue was HK$536 million, an increase of 51.8% over the previous year, accounting for 53.4% of total revenue. As the value-added service product matrix and customer matrix continue to be enriched, the value-added service business growth trend is expected to continue.

Overseas performance continues to be steady, and domestic market positions have been established. 1) Overseas market: 2023H1. The company continues to perform steadily in the US market. The US market revenue for the first half of 2023 was HK$440 million, an increase of 34.2% over the previous year, accounting for 43.9% of total revenue. The company has strong partnerships with leading global content providers, and in the first half of this year, it was possible to extend existing services to more platforms and expand the scope of services for some key customers to a full content library; 2) Domestic market: 2023H1. In the domestic market, the company achieved revenue of HK$560 million, an increase of 148.2% over the previous year, with domestic revenue accounting for 55.8% of total revenue.

According to forecasts, China will be the region with the fastest growth in data volume in the world. It is expected to increase at a rate of 30% each year, and become the world's largest data region by 2025. The domestic digital content industry is developing rapidly, and the demand for confirmation, trading and monetization of digital content assets is becoming more and more urgent. The company has seized market opportunities, accelerated the expansion of the Chinese market through rapid integration with particle technology, and successfully established an important position on the domestic copyright protection circuit. As of June 30, 2023, the company has implemented new collaborations with many content customers and platforms in China, and the synergies generated by strong content distribution and edge computing businesses are gradually being unleashed.

AIGC drives industrial transformation and creates new opportunities for the industry. AIGC has become a new engine for digital content production, bringing dramatic changes to content production and distribution. The rise of AIGC content and UGC content on social media is conducive to the flourishing development of the creative ecosystem, and content dissemination faces the risk of loss of copyright value while expanding new methods and channels. As a leading enterprise in digital content asset protection and trading, the company has begun active deployment in this direction. It will continue to provide efficient protection for content creativity and help creators create digital content more efficiently and conveniently. The increase in the amount of digital content will open up a wider market space for the company.

Profit forecast and rating: The company's subscription services and value-added services have achieved high growth, and domestic and foreign markets are gaining full strength. AIGC's leveraging of industrial transformation is expected to bring new opportunities to the industry. We expect the company to achieve revenue of HK$20.04/306/3,757 billion from 2023-2025, respectively, corresponding to PS 2.5/1.7/1.3x, and maintain a “buy” rating.

Risk warning: Business expansion falls short of expected risks, and market competition increases risk.