Key points of investment:

Driven by demand+technology+policy, the digital people industry has a lot of room for growth.

1) Demand side: B-side customers need digital labor to reduce costs and increase efficiency, and C-side customers expect to achieve digital transformation and intelligent services through digital people. Currently, the digital human demand market is mostly on the B-side. The ToC field is in its infancy, and the market potential is huge. According to the China Business Industry Research Institute, the overall market size of digital virtual people in China will exceed 270 billion yuan in 2030.

2) Supply side: Technological progress drives the expansion of digital human application scenarios, and lowering the usage threshold will promote UGC. Technological progress promotes the expansion of digital human application scenarios in the direction of intelligent interaction. Technological development will reduce production costs and usage thresholds, thereby promoting UGC development, broadening the C-side market, promoting digital people to enter the consumer level, and bringing new market growth.

3) Policy side: With clear rules+policy support, the digital human industry market is expected to accelerate growth. As rules are clarified and policies are supported, the demand for the digital human market and the scale of the industry will continue to expand.

Technical barriers are a long-term driver of a company's performance. Optimistic about the asset production side in the short term: self-developed technological advances+access to large models have lowered the threshold for digital human production and use, and spiraling costs and prices to seize market share; long-term optimism about the IP operation side: the rich and free use of the IP matrix to create a UGC ecosystem and expand the C-side market.

1) Technical barriers: Lay out the entire digital human industry chain and master the core technology of the entire digital human chain. In the digital human industry chain, the company's Yuanjing Technology and Yuanyuan Technology have respectively placed digital human asset production+IP operations, and reached the basic level through cooperation with Yinniu Microelectronics, achieving complementarity between software and hardware technologies. The company already has some products that have reached L4 digital people, and has technical barriers. The company continues to increase investment in R&D, has a rich pool of talents in the digital human business, has mastered a number of self-developed core technologies, built an optical motion capture shed to accumulate data, and continuously guarantee technical advantages.

2) Asset production: AIGC+ software and hardware are combined to reduce digital human production costs and usage thresholds. Yuanjing Technology has created two major platforms, Yuanxiang and Yuanqu. As a one-stop low-threshold 3D digital content creation platform and a 2D digital intelligence AI content generation tool, respectively, empowering 3D+2D digital production. Cooperating with Yinniu Microelectronics, a combination of software and hardware to open up the full link of digital human production and operation, continuously lower the entry threshold for the metaverse, and enrich digital human application scenarios.

3) IP operation: Enrich IP matrix expansion scenarios. Opening up own IP will create a UGC ecosystem. ① It has successfully operated 50+ virtual IPs such as Tianyu, and laid out multi-industry racetracks. ② The one-stop customization model seizes the market, integrates platform resources such as Douyin and Kuaishou to enhance IP operation capabilities, and focuses on empowering fields such as live streaming e-commerce to expand application scenarios and new business formats. ③ The company plans to open its own IP as a UGC community for free to enhance the value and business model of virtual human IP.

Profit forecast and investment recommendations: The company's revenue is expected to increase by 20%/18%/13% respectively in 23-25 to 20.8/24.5/2.77 billion yuan; net profit from the mother is 0.4/11/ 160 million yuan, respectively. The company was given 6.5X PS for 23 years, corresponding to a target market value of 13.62 billion yuan, and a target price of 8.2 yuan. First coverage, giving a “buy” rating.

Risk warning: Digital human business development falls short of expectations, market competition in the data traffic industry increases risk, etc.