2023H1's revenue is growing rapidly, and the loss ratio continues to narrow. Innovation Qizhi continued its high growth in 2023H1, with revenue increasing 43.1% year over year to 924 million yuan. Among them, manufacturing, finance, and others increased by 81%/6%/-9% year-on-year to 61/2.3/80 million yuan, respectively, accounting for 66%/25%/9%, respectively.
2023H1's gross profit was 300 million, up 45% year on year, and gross margin improved by 0.5pct to 32.4%, mainly due to scale effects, increased pricing power, and more standardized products and solutions. The adjusted net profit of 2023H1 was -39 million yuan, the loss ratio was -4.3%, up 4.9 pct from the previous year, and the loss ratio continued to narrow.
Adhering to the “specialization, refinement and innovation” strategy, “AI+ manufacturing” leads growth. Innovative wisdom focuses on manufacturing and financial scenarios, continuously cultivates, refines and iterates common models suitable for a certain scenario, and quickly replicates them within the same scenario to achieve commercial implementation. Adhering to the “expertise and innovation” strategy, Innovative Qizhi continues to replicate the “1*N” scenario and expand the “1+N” scenario in manufacturing segments such as iron and steel metallurgy, panel semiconductors, 3C high-tech, engineering construction, automotive equipment, energy and electricity, food, beverage & new materials, and intelligent manufacturing training.
The revenue of the 2023H1 “AI+ Manufacturing” business segment was 611 million yuan, up 81.3% year on year, and the share of manufacturing revenue increased by 14 pct to 66% year on year. Looking at specific segments, the revenue of the 2023H1 automotive equipment/OLED panel semiconductor manufacturing/engineering and construction/3C high-tech and power sector was 2.27/0.98/0.58/0.58/0.4/44 billion yuan, respectively, up 87%/92%/86%/384%/8% over the previous year. The new layout of food, beverage, new materials, and manufacturing training achieved revenue of 0.59/045 million yuan in the first half of the year.
Actively embrace AIGC technology and release the “Qizhi Kong Ming AInNoGC” industrial model and product matrix. On September 1, Innovative Qizhi released a large-scale industrial model (AINNO-15b) with 15+ billion parameters, a big model service engine, and three generative AI application products based on the big model — the “Qizhimingda ChatRobot” generative industrial robot task scheduling application, the “Qizhimingsu ChatBI” generative enterprise private domain data analysis application, and the “Qizhimingsu ChatDoc” generative enterprise private domain knowledge question and answer application.
At present, Innovation and Wisdom has established an AI twin tower technology layout composed of the MMOC artificial intelligence technology platform and the AinOGC industrial large model technology platform to provide customers with complete AI technical capabilities from perception to analysis to decision generation. Among them, the MMOC platform provides traditional AI 1.0 technical capabilities, supports AI solution innovation, development and delivery from end to end, and the large industrial model supports text, visual, and multi-modal content generation, and drives the implementation of AI 2.0 applications and solutions. We expect AIGC to become the company's new growth engine in the future.
Investment advice: We expect the company's revenue to be 22/31/43 billion yuan from 2023-2025, an increase of 42%/40%/38% over the previous year. We expect the company's gross profit margin and expense ratio to continue to improve and drive profits. We expect adjusted net profit for 2023-2025 to be -0.65/0.37/126 million yuan. We gave Innovation Kizhi (2121.HK) a target price of HK$25, corresponding to 4x 2024e P/S, maintaining the “buy” rating.
Risk warning: the risk of increased competition in the industry, the risk of loss of customers and insufficient customer acquisition, the risk of performance growth and cost control falling short of expectations, and the risk of overall valuation adjustments in the industry.