Event: Company Announces 2023 Semi-Annual Report. 2023H1 achieved revenue of 2,038 billion yuan, +29.1% year on year, adjusted net profit of 342 million yuan, narrowing 57.8% year on year; 2023Q2 achieved revenue of 1,044 million yuan, +24.9% year on year, and adjusted net profit of 222 million yuan, narrowed by 49.9% year on year.

The multi-engine business model is growing well, with outstanding performance in paid memberships and vocational training. The 2023Q2 company achieved revenue of 1,044 million yuan, +24.9% year-on-year, of which 1) marketing service revenue was 413 million yuan, -13.7% year-on-year, under pressure from the external environment. Continued improvement of the company's advertising products is a strategic priority to increase profit margins, and is optimistic about the gradual recovery in the second half of the year; 2) Paid membership revenue was 449 million yuan, +65.6%, compared to +65.6%, mainly due to content optimization and improved user experience. The number of subscribed members was increased by +65.3% to 14 million. In May of this year, the company launched “Salt Yan Story”, a short story app created by subscribers, further enhanced the user experience of subscribers; 3) Vocational training revenue was 145 million yuan, +213.3% year-on-year. The sharp increase was mainly due to the company's launch of richer online courses and parallel education companies, which gradually became the company's second growth curve.

Continuously optimize operational efficiency. The gross margin of 2023Q2 was 53.8%, +6.0 pct year on year and +2.3 pct on month. The main reason is that the company has strengthened its commercial monetization capabilities and improved the efficiency of cloud services and bandwidth utilization. The 2023Q2 sales/R&D/management expense ratio was 51.8%/22.6%/10.8%, respectively, compared to 11.9 pct/-4.1 pct/-1.7 pct. The overall cost rate dropped significantly, and the results in cost reduction and efficiency were remarkable.

2023Q2 adjusted net profit of $222 million, narrowed by 49.9% year-on-year.

The community ecosystem has maintained high-quality growth, and AIGC technology has further empowered it. The company deepened content penetration in vertical fields, expanded the content library to cover more lifestyles and consumption scenarios, and greatly upgraded the content tools for creating short stories to meet the reading needs of fragmented stories. 2023Q2 has a total of 711 million pieces of content, covering more than 1000 vertical fields, MAU of 109 million, +3.3% year on year, +6.8% month on month, and a total of 66.6 million content creators, +12.8% year on year. In April 2023, the company launched Zhihaitu AI, a large language model with 10 billion parameters. The “Hot List Summary” function began closed beta. Currently, it is accelerating exploration of the application of AI technology in various scenarios throughout the ecosystem. It is expected to improve the effectiveness of content recommendations, improve the efficiency of user search, and lower the threshold for content creation, thereby further empowering the community's content production and monetization.

Investment suggestions: We expect the company's revenue for 2023-2025 to be 42.86/48.72/5.391 billion yuan respectively, +18.89%/+13.67%/+10.66% year-on-year, and adjusted net profit of -684/-1.44/231 million yuan. Maintain a “buy” rating.

Risk Warning: Macroeconomics falls short of expectations; strengthened industry regulation