Event: Tom Cat (3 00459.SZ) released its mid-2023 report on August 29, 2023. 23H1 achieved revenue of 688 million yuan, down 19.27% from the same period last year, and its net profit was 187 million yuan,-35.81% compared with the same period last year.

23H1's operating revenue and profits have narrowed, while advertising revenue has declined slightly on the revenue side due to the global economic downturn and a reduction in online advertising. In terms of expenses, 23H1 sales expenses are 171 million yuan, year-on-year-20.83%, management expenses 151 million yuan, year-on-year-18.89%, R & D expenses 60 million yuan, year-on-year-19.66%, financial expenses 56 million yuan, year-on-year + 75.87%. The company's gross profit margin on 23H1 sales was 91.00%, reducing 3.12pct compared with the same period last year, achieving a homing net profit margin of 27.14%, and reducing 6.99pct compared with the same period last year.

Business split: the company's mobile application issuance revenue was 84 million yuan, year-on-year-11.86%, gross profit margin 96.40%, year-on-year increase of 0.26pct; advertising revenue 519 million yuan, year-on-year-20.73%, gross profit margin 97.83%, gross profit margin decreased 0.07pct. Other business income is new business service business, media film and television business, authorization business and others. The company's domestic income was 176 million yuan,-7.55% compared with the same period last year, the gross profit margin was 70.97%, and the gross profit margin was reduced by 9.40 pct; the overseas income was 512 million yuan,-22.64% from the same period last year, the gross profit margin was 97.90%, and the gross profit margin decreased 0.86pct compared with the same period last year.

2023Q2 performance: the company achieved revenue of 347 million yuan, year-on-year-10.64%, month-on-month + 1.6%. The total operating cost was 260 million yuan,-7.64% compared with the same period last year, and + 6.69% compared with the previous year. The sales fee is 82 million yuan, year-on-year-30.01%, month-on-month ratio-7.59%; management cost 85 million yuan, year-on-year + 11.68%, month-on-month ratio + 29.24%; R & D cost 30 million yuan, year-on-year-42.92%, month-on-month ratio + 1.77%, financial cost 28 million yuan, year-on-year + 99.30%, month-on-month ratio + 1.83%. The net profit of returning to the mother was 84.58 million yuan,-21.99% compared with the same period last year, and-17.25% compared with the previous year.

Comments:

Relying on a large number of users, online mobile applications are expected to continue to operate, and the game plan is making steady progress throughout the year.

23H1, the company's "Land Warriors", "Tom Cat Little Warriors", "Marsh Battle 2", "Mountain and Sea Evolution" and other products have successively obtained version numbers, among which "Land Warriors" ranked first on the domestic APP Store game free list (simulation category) as soon as it was launched. Update the play and economic system of "my Tom Cat 2" to improve the activity and stickiness of users. Core matrix products such as "my Tom Cat", "my Angela" and "my Angela 2" have maintained an average of 10 million monthly active users. As of 23H1, the cumulative downloading of the company's products worldwide has exceeded 2 billion person-times, with the highest MAU reaching 470 million person-times. Looking to the future, 23H2 will actively promote the R & D and launch of game products such as "Tom Cat Paradise", "Tom Cat Picture album", "Talking Ben AI", "Sonic Dash:Endless Running", "Sonic Dash 2: Sonic Boom", "Marsh Guild Wars 2", "MyTalking Hank: Islands" and AI products.

Among them, "Talking Ben AI" has greatly innovated and upgraded the communication and interaction ability of the core protagonist Dog Ben by using the innovative mode of combining AI general model and preset database. Companion product "AI Tom Cat" has also begun to close test applications.

With the gradual recovery of offline consumption, the opening of Tom Cat IP offline parent-child paradise is expected to deepen IP market awareness and complement online and offline. In 2023, H1, the company opened a number of Tom Cat parent-child theme parks in Jiangxi, Chongqing, Zhejiang and other places with self-supporting and partner-based two-wheel drive mode. among them, the number of receiving family groups in Jiangxi Nanchang and Jiangsu Yancheng partner stores has exceeded 30,000 since January this year. At the same time, with the steady recovery of offline consumption, the company has also joined hands with Hengan Group and other brands to launch a number of Tom Cat family IP joint products, and with the help of live rooms and other media channels to further enhance their own market awareness.

West Lake Xinchen large model algorithm is approved, Tom Cat AI products are expected to achieve accelerated iteration. The content generation algorithm of the West Lake model of West Lake Xinchen, an artificial intelligence company invested by the company, was filed with the national algorithm on September 1, and the public service will be opened from now on, which means that the landing speed of Tom Cat AI products is expected to be further accelerated. In 2023, H1 Company tested that the "Tom Cat" IP image was implanted into the AI interactive product function prototype, and added speech recognition, speech synthesis, personality setting, content filtering and other functions, and initially realized the product performance of voice interaction, continuous dialogue and so on. As of the release date of the China News, the functional prototype of AI products developed by the company's domestic team has undergone two rounds of closed testing. Overseas teams use large third-party models such as OpenAI for testing, and their preset database will help the company's products improve the speed of intelligent interaction, optimize the content of interaction, and effectively reduce the cost of interaction. Meanwhile, Talking BenAI, the first AI product developed by Tom Cat's overseas team, has begun initial testing in countries such as Slovenia, Cyprus and South Africa. Overseas subsidiaries have invested in KOBI, a children's reading assistance software, and tested it in North America, which will help children finish reading and stimulate their interest in reading. At the same time, Dingzeng is also making steady progress.

Profit forecast: Tom Cat invests heavily in AI product research and development, although the company's overall revenue is still affected by fluctuations in the advertising industry, but with the iterative release of AI products, it is expected to derive more business application scenarios and cash-out models, based on a large number of users, is expected to return to the growth track. According to the unanimous forecast of Wind, the company's operating income for 23-25 is expected to be 2.41 billion yuan, an increase of 14.7%, 13.22% and 13.63%, respectively. It is estimated that the net profit of returning to the mother in 23-25 will be 685,802 million yuan respectively, an increase of 33.42% 16.75% 17.07% over the same period last year. As of September 6, 2023, the current market capitalization of 18.88 billion yuan corresponds to 32.2x/27.6x/23.5xPE, which is recommended to pay attention to.

Risk factors: the launch progress of AI products is not as expected, the willingness of advertisers to launch is weakened, etc.