Incident: Zhejiang Internet published its 2023 annual report. In the first half of 2023, the company achieved operating income of 5.722 billion yuan, a year-on-year decrease of 26.09%; net profit of 71.1515 million yuan, an increase of 10.73% over the previous year; net profit after deducting non-return net profit of 697.232 million yuan, an increase of 8.46% over the previous year. Among them, in the second quarter, the company achieved revenue of 2,926 billion yuan, a year-on-year decrease of 20.03%; net profit of 32.8891 million yuan, an increase of 13.56 percent over the previous year; net profit of non-return net profit of 319.978 million yuan, an increase of 12.15% over the previous year.
Maintain high-quality customer resources to help grow steadily in performance: in the first half of 2023, the company's main business gross profit margin was 5.71%, up 1.32 pct year on year; sales expense ratio 1.58%, up 0.24 pct year on year; management expense ratio 2.19%, up 0.60 pct year on year; R&D expense ratio 0.30%, up 0.06 pct year on year. 1) Deepen the layout of leading customers: In the first half of 2023, the company's brand marketing business continued to have a leading market share position in the automotive industry segment, focusing on breaking through new energy vehicle customers, accelerating non-automotive brand customer service, and further expansion among state-owned enterprises and state-owned enterprise customers; 2) Continued consolidation of qualification advantages: In the first half of 2023, the company's performance marketing business maintained close cooperation with leading media such as Massive Engine, Tencent, and Kuaishou. It has successively obtained comprehensive agents, a huge number of three-star service providers, marketing science service providers, and Douyin brand e-commerce service Business, KOL Purchasing partner agency multi-status agent.
Leading the digital culture ecosystem layout, empowering businesses to improve quality and efficiency. 1) Digital marketing: The company's digital marketing business has two major divisions, effect marketing and brand marketing, and has created a digital marketing full-link service matrix covering data insight, effect marketing, effect optimization and management, brand promotion, media planning and delivery, experiential marketing, public relations, content marketing, self-media, and marketing technology products to help the company's performance grow steadily; 2) Virtual People: The company's virtual digital person business continues to develop, incubating multiple virtual figures such as “Lan LAN” and “Jun Ruojin”. The “Digital Virtual Person—DIGITALHUMAN” business has been launched in Hangzhou. It has formed a relatively complete industrial production capacity for virtual people, which is expected to break through the marketing dimension and create a new virtual IP marketing ecosystem; 3) AI painting: The company took the lead in deploying two super applications, the AI painting application “Rice Painting” and the metaverse scene production tool “Digital Warrior”, to efficiently empower C-end users to create digital art; 4) Virtual Scenes: The company efficiently serves customers in the automotive industry with strong virtual space design and production capabilities, and promotes the launch of the “Greek Mythology AR Art Park”, the first large-scale virtual reality integrated experience space in China. 5) Implementation of the mixed reform: On August 24, 2023, the company completed the registration of new shares, and the state-owned shareholder Zhejiang Cultural Investment increased to 16.47% of Zhejiang Wenxin's shareholding ratio. The future may bring in more resources.
Furthermore, the funds raised this time will be used to explore the “AI+” model to fully empower marketing business and help the company achieve a strategic upgrade from “digital marketing” to “digital culture technology.”
Profit forecast: We have slightly adjusted our profit forecast. We expect the company's net profit to be 281/3.39/411 million yuan for 2023-2025. PE corresponding to the current stock price (August 30, 2023) will be 28.4/23.5/19.4 times, respectively, maintaining the “increase in holdings” rating.
Risk warning: risk of increased market competition, risk of business compliance, risk of new business layout, risk of loss or shortage of core technical talent