Event: The company released 23Q3 results on October 23. In 23Q3, the company achieved revenue of 369 million yuan, a year-on-year decrease of 13.26%; realized net profit attributable to shareholders of listed companies of 39 million yuan, an increase of 163.03% over the previous year. The first three quarters of 23 years achieved cumulative revenue of 1,020 billion yuan, an increase of 12.19% over the previous year; net profit attributable to shareholders of listed companies was 0.2 billion yuan, an increase of 101.98% over the previous year.

The first three quarters of 23 years turned a loss into a profit, and performance continued to improve. The company realized net profit of 0.02 billion yuan in the first three quarters of 23 years, turning a year-on-year loss into a profit. Among them, 23Q1/Q2/Q3 achieved revenue of 288/3.63/369 million yuan, net profit of 0.37/0.00/39 million yuan, respectively. Operating performance continued to improve, maintaining the month-on-month growth trend. In addition, the company's 23Q3 sales/management/R&D expense ratio was 29%/8%/5% respectively, down 13.42/1.51/3.27pct year on year.

We have high-quality IP and data resources, and continue to strengthen IP operations. According to the company's semi-annual report, the company has a number of high-quality online text IPs, and is also developing multi-modal derivative content such as audio, animation, and short dramas for high-quality IPs. For example, the short drama “Jagya” and the “Shura Valkyrie” animated drama are all very popular. In addition, the company has text, audio, and video data resources, with a total volume of over 60 TB. In addition, the company's contract authors are expected to continue to contribute incremental data, provide rich data resources for Chinese online big model training, and form a “flywheel effect”. The iteration of the company's multi-modal content generation technology is expected to continue to reduce the cost of text IP adaptation while improving the company's content production efficiency.

The official launch of “Happy Chinese” is the first major vertical model in the field of writing in China. On October 13, the company officially released the world's first 10,000-character model, “Chinese Happy Life”. The model mainly serves Chinese creators, and can quickly “generate 10,000 character novels with one click, generate novels with one picture, and read 1 million character novels at once”, etc. The Chinese Happy Life Model has certain advantages in general knowledge questions and answers, writing logic, and multi-modal ability, etc., and is expected to evolve content product production from a manpower model to a “manpower+computing power” model.

Investment suggestions: We expect the company to achieve revenue of 1,517/18.31/20.00 billion yuan; net profit of 1.15/2.06/286 billion yuan; and EPS of 0.16/0.28/0.39 yuan in 2023-2025. The corresponding PE is 140.2/78.1/56.3 times, respectively. The company's AI+IP dual-engine strategy continues to gain strength, which is expected to drive continuous improvement in the company's performance and maintain the “buy” rating.

Risk warning: AI development falls short of expectations; risk of significant impairment of goodwill; monetization of overseas advertising business falls short of expectations; domestic consumption recovery falls short of expected risk.