The company released its 23Q4 financial report: 23Q4 revenue of US$464 million, YoY +3%, QoQ +5% (agreed estimate of US$454 million), and revenue with a constant exchange rate increased 5% year over year. The gross margin reached 78%, up 2.1 pct year on year, down 0.3 pct from month to month, and 1 pct more than the agreed forecast of 77%. GAAP net profit to mother was $83.23 million, YoY -41%, QoQ +7%, and the agreed forecast was $78.99 million. NongAAP's net profit to mother was $76.37 million, YoY -57%, QoQ -44%, and the agreed estimate was $122 million, which was lower than expected mainly due to tax adjustments affecting non-current items. The company is now paying a special cash dividend of $200 million to increase shareholder returns.
The advertising performance of different sub-industries is quite divided, and continuous growth in categories such as digital 3C and automobiles has made up for the decline in the beauty industry. 23Q4 advertising revenue was $404 million, YoY +3%, QoQ +4%, constant exchange rate of 5% year-on-year growth, vs. consistent expectations of $394 million. 23Q4 advertising revenue from Alibaba was US$44.89 million, up 6% year on year, up 107% month on month; third party advertiser revenue was US$359 million, up 3% year on year, down 2% month on month. Looking at the industry, the game (“Yuanmeng Star”, “Egg Party”) and e-commerce industries performed strongly in the fourth quarter. Ad revenue for the full year of '23 was $1,534 million, YoY -4%, and annual ad revenue increased 1% year over year at a constant exchange rate.
Profit forecasting and investment advice. The company may increase investment in vertical content and user acquisition in the community in 24 years, and will also increase infrastructure or slightly increase operating expenses in AIGC. On the revenue side, we still have to wait and see the macro trend. Due to the fragmented performance of different industries, we are currently maintaining a cautious attitude.
We expect revenue of $1.75 billion and $1,804 billion in 2024-25, up -1%/3%.
Adjusted net profit to mother for 2024-25 is estimated to be $437 million and 486 million, up -3% and 11% year-on-year. Based on the 1xPEG valuation, the 24-year adjusted net profit was 8.4 times PE, and the reasonable value was $15.52 per ADS (HK$121.35 per share), maintaining the purchase rating.
Risk warning. Risks such as a single revenue structure, Sino-US regulatory policies, and exchange rate fluctuations.