The company released the 23Q3 quarterly report. In Q3, it achieved operating income of 586 million yuan, an increase of 5.6% over the previous year; realized net profit of 61 million yuan, a decrease of 15.0% over the previous year; and realized net profit of 520 million yuan deducted from the previous year, a decrease of 24.7% over the previous year.

In 23Q3, total profit after excluding exchange earnings and net profit attributable to shareholders of the parent company all showed positive year-on-year and month-on-month growth. Global digital advertising is recovering, and the company's business recovery trend is remarkable. Affected by fluctuations in the exchange rate of RMB against the US dollar, the company's 23Q3 exchange income was 9091 million yuan, the exchange income for the same period last year was 48.014,400 yuan, and the exchange revenue for the second quarter of 2023 was 28.7771 million yuan. 23Q3 had a total profit of 68.8 million yuan for the third quarter after excluding exchange gains and losses, an increase of 47.87% over the previous year and 3.66% over the previous year; net profit attributable to shareholders of the parent company after excluding exchange earnings was 66.6181 million yuan, up 61.94 million yuan, up 12.37% year on month. The company mainly uses US dollars for payment and settlement, and does not carry out a large number of settlement operations, so the impact of the exchange rate is due to the difference in conversion between the US dollar statement and the RMB statement.

“AIGC+ marketing” creates a new engine for domestic and overseas business growth and enhances the efficiency of the enterprise's own operations. The company built the overall product technology framework for the big AI model, and used this as a basis to build an AI center with multi-modal capabilities to connect various product modules. Kreado AI, the first AIGC digital marketing creation platform launched by 2023Q3, provides privatized customization and SaaS services. The materials have been used in various fields such as business travel, e-commerce, applications, education, medical care, and corporate services, covering 67 countries around the world, and has been recognized by major model partners AWS and major customers such as Ctrip and Lazada. AIGC empowers the company's entire marketing link. The field of intelligent marketing will usher in a new round of efficiency revolution and pattern transformation. The company is expected to usher in a business model upgrade and revenue growth impetus with its clear data reserves.

Chinese brands have a strong desire to go overseas, and demand is strong on the application side of the AI layout of the platform. Rich experience helps expand new tracks. After international relations became relatively stable, the Chinese brand's intention to go overseas became more clear, and the company helped promote its internationalization and digital transformation. In 2023, the company established a cooperation with Cuddy Coffee to establish links with brands that have a clear pace of going overseas, such as Bosideng and Huaxi Biotech, etc., and will continue to actively expand target customers and help the brand go overseas. The company has maintained long-term good cooperative relationships with leading Internet companies such as Alibaba, SHEIN, Tencent, Bilibili, Google, Meta, TikTok for Business, Massive Engine, Magnetic Engine, etc., game companies such as Mihayou and Fun Plus, as well as overseas brand customers such as Voice, Tulas, Nature Hall, and Huawujiao. Big platform customers focus on AI, advertising agency services are in high demand, and the company's market expansion opportunities are increasing.

The 23-year stock incentive plan highlights management's confidence in future performance. On October 19, the company issued an announcement on the grant of restricted shares to incentive targets. At a price of 8.77 yuan/share, the company granted 15.5 million restricted shares to 49 company directors, senior management, middle management and core technology (business) executives who meet the grant conditions. The assessment target for restricted stocks granted by the 2023-2024 incentive plan is that the total profit after deducting exchange gains and losses is not less than 275/345 million yuan, respectively. The net profit target of $275 million for '23 is 30.9 corresponding to the current stock price PE.

Downgraded to “Overweight” rating. The company is deeply involved in overseas marketing business, has a large number of high-quality customer resources, and AI empowers the entire marketing chain. As the macroeconomy recovers, the company's performance is expected to continue to recover. Considering the post-cycle characteristics of marketing companies in '23, and the overall repair was relatively slow, we expect the company's net profit from 2023-2025 to be 2.62/3.19/395 billion yuan, corresponding to 32.4/26.6/21.5 times PE, respectively, and the evaluation was downgraded to “increased holdings.”

Risk warning: Competition is increasing; the recovery of the global digital advertising market falls short of expectations; AI technology development falls short of expectations.