Key points of investment
Incident: Leo shares released its 2023 annual report. The company's revenue for the first half of 2023 was 11.221 billion yuan, up 14.25% year on year; net profit to mother was 1.919 billion yuan, up 100.87% year on year; net profit after deducting non-return to mother was 165 million yuan, up 244.74% year on year. Among them, in the second quarter, the company achieved operating income of 6.026 billion yuan, a year-on-year increase of 17.97%, net profit to mother of 1,322 billion yuan, a year-on-year decrease of 25.92%, and net profit after deducting non-return to mother of 106 million yuan, an increase of 1723.10% over the previous year.
The main business grew steadily, and cost reduction and efficiency continued to advance. In the first half of 2023, the company's main business gross profit margin was 7.15%, down 0.40pct year on year; sales expense ratio was 3.11%, up 0.27pct year on year; management expense ratio was 1.95%, down 0.07pct year on year; R&D expense ratio was 0.67%, down 0.17pct year on year. 1) Leo Pump Industry: In the first half of the year, Leo Pump Industry reduced costs and increased efficiency through continuous optimization management in procurement cost control, product delivery, supplier management, etc., and achieved operating income of 1,664 billion yuan, a year-on-year decrease of 8.79%, and net profit of 1.924 billion yuan, an increase of 85.53% over the previous year. 2) Leo Digital: In the first half of 2023, with the recovery of the Internet advertising market, the company continued to broaden its capabilities and boundaries, seize the opportunities brought by the AIGC era, reshape brand marketing methods, and achieve revenue of 9371,000 yuan, an increase of 20.70% over the previous year. 3) Investment business: The net cash flow from the company's investment activities in the first half of the year was 1,244 billion yuan, a year-on-year decrease of 34.50%, mainly due to the decline in investment income received from the disposal of Ideal Auto Stock in the current period compared to the same period last year.
The customer matrix continues to expand to seize opportunities in the AI era. 1) Leo pump industry's “high-quality development”:
Leo Pump Industry adheres to the customer as the center and actively builds a “operation management” structure based on industry lines and product lines to build high-quality output capacity. It won bids for several key projects in the first half of 2023, covering various industries such as water conservancy, electricity, petrochemicals, municipal administration, construction, etc., and the future performance is basically stable; 2) Rich in leading channels and customer resources: Leo Digital and 12306 have formed a three-year partnership, exclusively representing the two major industries of FMCG and Big Health. In addition, Leo Digital has established deep cooperative relationships with many leading media and well-known domestic and foreign customer brands. Customers cover the Internet, FMCG, automobiles, 3C durable goods, sports fashion, health, e-sports, etc., and the business footprint continues to expand; 3) AIGC continues to empower: In the first half of 2023, Leo Digital closely followed the productivity changes brought about by AI tools, and pioneered the launch of LEO AIAD, an AIGC ecosystem platform for the entire marketing industry through various models such as open source ecology, cooperative development, and independent research and development. LEO AIAD can embed extensive marketing industry knowledge, and can accurately understand how to design adaptively for different market segments, user segments, channel segments, etc., provide more stable, accurate, controllable, and customized creative efficiency, improve advertising effectiveness, and help the brand grow comprehensively.
Profit forecast: The company's digital marketing continues to recover, AIGC's ability to reduce costs and increase efficiency can be expected in the future, and domestic expansion of the manufacturing industry is expected to increase the company's performance. We have slightly adjusted our profit forecast. We expect the company's net profit to be 5.74/766/ 933 million yuan for 2023-2025, and PE corresponding to the current stock price (August 30, 2023) will be 30.3/22.7/18.6 times, respectively, to maintain the “gain” rating.
Risk warning: Market competition increases risk, raw material price fluctuation risk, brain drain risk, human resource risk, risk of AIGC technology development falling short of expectations, etc.