Event: Yingyue released its 2023 annual report. In the first half of the year, the company achieved operating income of 3.126 billion yuan, a year-on-year decrease of 23.0%, an increase of 38.4% over the second half of 2022; net profit of 193 million yuan (loss of 111 million yuan in the same period last year), and adjusted net profit of 206 million yuan.
Comment:
The live streaming social ecosystem continues to improve, and skits have become a new growth point. In the first half of 2023, the company achieved revenue of 3.126 billion yuan, of which value-added service revenue was 2,315 million yuan, a year-on-year decrease of 40.8%; content service revenue was 472 million yuan, which had not yet incubated this business in the same period last year; and other revenue was 339 million yuan, an increase of 128.0% over the previous year. Among them, value-added service revenue mainly came from live streaming, blind dates, and social networking products. The decline in revenue was mainly due to the company adopting a careful operation strategy for some social products in the second half of last year; the rapid increase in content service revenue stemmed from the company starting to lay out the short drama business in the second half of last year and seizing the rapid growth opportunities in the short drama market this year. Currently, the company's short dramas are in the first tier of the industry; other revenue comes from the company's innovative business sector, and the growth mainly comes from overseas business layouts. Looking ahead to the second half of the year, the company's live streaming social networking ecosystem continues to improve. The “Super Like” blind date business focuses on single young people after the 90s and accelerates the expansion of offline stores. Revenue from value-added services is expected to rise steadily from the first half of the year; skits have become a new growth point, and content service revenue is expected to continue to grow rapidly.
Gross margin is stable, and net profit has been turned into profit. (1) In the first half of 2023, the company's sales cost was 1,796 million yuan, and the gross profit margin was 42.6%, which remained stable; (2) sales expenses of 962 million yuan, sales rate of 30.8%, an increase of 9.5 percentage points over the previous year, mainly due to the company building an innovative product matrix and short drama business promotion. Promotion expenses increased 104 million yuan year on year; management expenses of 100 million yuan, management expenses of 3.2%, a year-on-year decrease of 12.0 percentage points, mainly due to the loss of goodwill of the subsidiary Blueberry Social Network in the same period last year; R&D expenses of 143 million yuan The R&D fee rate was 4.6% and remained stable; (3) The company's net profit was 193 million yuan, turning a loss into a profit. If the impact of such matters as impairment of goodwill and stock incentives is not taken into account, the company's adjusted net profit is 206 million yuan, and the adjusted net interest rate is 6.6%.
Strengthen overseas market expansion and actively deploy AIGC. Audio and video social gameplay is becoming a “soft demand” for internet users around the world. Currently, Yingyu has launched several products overseas, covering many countries and regions such as Europe, America, and Southeast Asia. In the second half of 2023, the company will invest more resources in overseas markets to expand the number of overseas users and product penetration; in April 2023, the company connected to GPT3.5 turbo to actively explore AIGC development directions such as interactive social networking, AI music, AI script, AI operation, and digital human live streaming; in July, the company carried out technical cooperation with Kunlun World Wide to promote technology research and development of large-scale models and drive the intelligent evolution of live streaming and social networking services to AI.
Investment advice: The company started with a single broadcast product and successfully implemented live streaming, social networking, blind dates, skits, and overseas product layouts. Currently, the short drama business and overseas markets are becoming new growth points for the company.
We expect the company's net profit to be 350 million yuan, 419 million yuan, and 494 million yuan respectively in 2023-2025. The corresponding PE share prices will be 3.8X, 3.2X, and 2.7X respectively, maintaining the “recommended” rating.
Risk warning: (1) strengthening supervision of domestic live streaming and social networking services; (2) skit promotion costs are rising rapidly; (3) overseas market expansion falls short of expectations.