occurrences

On January 27, the company announced its 2023 performance forecast. It is expected to achieve net profit due to mother of 400 million yuan to -640 million yuan for the whole year, an increase of 1.0%-32.0% over the previous year; net profit after deduction - 430 million yuan to -630 million yuan, an increase of 0.5%-32.1% year on year. On February 4 and 5, the company launched the full-process AI Lunar New Year short film “The Year of the Dragon Realm”; on March 23, the company tested SunoV3 and assembled cutting-edge AI generation technology to produce “Heavy Metal Edition”.

On March 24, the company announced the connection to Kimi, and Xiaomai Marketing Assistant launched a new version 3.0? reviews

The main marketing business has gone through a painful period of business adjustment, and personnel have been reduced and optimized to optimize the company's cost structure.

In 2023, the company strengthened the management of cash flow and accounts receivable, abandoned some business orders that were too long, and the scale of revenue decreased. Furthermore, in 2023, due to overall consumption recovery falling short of expectations, the company adjusted its business portfolio according to customer conditions to help customers tap traffic results, which affected gross profit margins to a certain extent. In order to optimize the long-term business model, in 2023, the company consolidated its main business lines, cut non-key businesses, reduced related business personnel, and incurred more conversion costs, which also dragged down profitability to a certain extent. As the company focuses on its core business and successfully passes through the painful period of business restructuring, the scale of revenue is expected to continue to grow, and personnel costs will be drastically reduced, thus ensuring the company's long-term stable development.

Restructure the marketing workflow to achieve full chain empowerment and multi-dimensional efficiency. The company launched the “Huayang Marketing Brain”, which perfectly combines “computing power (big model calculation ability)” +mental power (human creativity)” to optimize and reinvent the workflow. At the computing power level, Huayang's marketing brain can capture consumer behavior data, grasp the DCD system that actually drives consumption in a timely manner, and analyze and interpret keywords representing user needs; at the mental level, Huayang's marketing brain further integrates big models such as ChatGPT-4 and Midjourney V5, and the creative collaboration tool HIGC, which has been privatized and deployed through years of company-exclusive big data, to restructure keywords and transform them into highly accurate “prompt” prompt ” Command words, intelligently generate one-stop brand content from text to vision. By integrating data capabilities, Huayang's marketing brain can link text interpretation and image creation, which not only significantly reduces the time cost of brand insight, but also stimulates creative inspiration, and forms a complete closed loop of data-driven content to achieve continuous optimization.

The shocking launch of “The Year of the Dragon Realm” showcased core advantages, and AI video tools quickly iterated to improve production efficiency. The AI Lunar New Year short film “The Year of the Dragon Realm” is 4 minutes long. The short film uses mainstream AI applications such as ChatGPT, Dall E, Midjourney, Runway Gen2, Elevenlabs, and StableAudio to process work content such as original images, video generation, vocals, and music sound effects. It finally presents a blockbuster level picture texture, complete expression of the storyline, and accurate matching of mimetic task dialogue and music, showing the company's unique advantages in imagination, aesthetics, and video language skills . Video creation is subjective and original, contains humanistic care and emotional expression, and AI tools have played a greater role in reducing costs and increasing efficiency. The company's strong creative thinking and ability to express themselves is still its core competitiveness in the AI era. AI video tools such as Sora and LTX Studio have been introduced one after another, and full-process production functions such as video generation, editing, and rendering have been upgraded to solve problems such as video continuity and character consistency, and can improve the company's advertising production speed, so that the company can focus on the creative process and give full play to its core advantages.

AI music ushered in the ChatGPT moment, and Suno V3 empowered marketing companies to achieve musical freedom. The Suno V3 version was launched on March 22. It allows users to generate a complete 2-minute song in a very short time through prompts, improving creative efficiency, and the V3 has been significantly improved in terms of sound quality, style, and user response. AI music ushered in a ChatGPT moment:

1) Excellent sound quality: Through fine technical adjustments and optimization, the V3 provides high sound quality output close to broadcast; 2) Multiple styles: the V3 model provides a richer choice of music styles and genres; 3) Accurate user response: The V3 model not only improves accurate response to user instructions, reduces misunderstandings, but also ensures a smoother and more natural ending of the music. The company used Suno V3 to directly turn the narration of the AI full-process short film “Big Wild Universe” into heavy metal, then mixed and cut the images of “Big Wild Universe” and “Endless Run” to produce the “Heavy Metal Edition” produced by full-process AI. The rapid iteration of AI music technology will form a good collaboration with AI video production in the future, further improving the company's AI production process efficiency.

Xiaomai Marketing Assistant has been updated to version 3.0 to connect to Kimi and upgrade core features. Xiaomai Marketing Assistant is an AI data analysis tool launched by the company in September 2023. It can provide customers and employees with accurate and efficient data insights and analysis results. Recently, Xiaomai Marketing Assistant was updated to version 3.0, connected to Kimi, and upgraded core features: 1) Shorter analysis time:

Using advanced algorithm optimization, it can respond quickly to user analysis requests, and uses parallel processing technology to process multiple data analysis tasks at the same time, further improving analysis efficiency.

2) Higher query success rate: Various built-in optimization algorithms can select the most appropriate algorithm for processing in response to different types of data and analysis requirements. It also has the ability to self-learn, and can continuously optimize algorithms based on historical analysis results to improve the success rate of analysis. 3) Better stability: Stable execution of analysis tasks is ensured through multiple fault-tolerant mechanisms, and operation status and analysis tasks can also be monitored in real time, and abnormalities are handled immediately once discovered to ensure the continuity and stability of services. 4) Lower cost: Using a new intelligent multi-process method, the number of tokens is greatly reduced; intelligent services are provided to improve work efficiency, thereby reducing costs. Kimi's extensive training data comes from the Chinese world. After connecting to Kimi, the marketing copy generated is more in line with the Chinese context. Furthermore, public opinion and market data analysis in the advertising industry usually requires entering large amounts of data as a foundation. Kim's support for long contexts enhances the company's ability to analyze data, making it more competitive and forward-looking.

Relocating to Changsha to take advantage of synergy and create a digital cultural tourism ecosystem. With its marketing capabilities and digital technology advantages, the company cooperated with various museums such as the Forbidden City and the Qin Shi Huang Mausoleum to combine traditional cultural relics with modern art, maintain integrity and innovation, launch the Forbidden City's first digital art collection, the Forbidden City Cloud Course 24 Solar Season Digital Badge, and successfully incubate cultural and creative IPs such as Li Xiaozheng and Qin Dawei. In September 2023, the company joined the Hunan “Golden Hibiscus” Jumping Action Plan and officially changed its registered address to Changsha. In the future, it will cooperate deeply with local state-owned enterprises such as Hunan Caixin Financial Holdings and Xiangjiang Group to inject new momentum into the high-quality development of the city and company. Changsha City is rich in cultural tourism resources. It has famous tourist attractions such as Changsha Window of the World, Meixi Lake International Culture and Art Center, Dawangshan Xiangjiang Happy City, and Huayi (Changsha) Brothers Movie Town. The company's main business is fully compatible with the cultural tourism industry in Changsha. In the future, it is expected to use its digital cultural tourism operation experience to revitalize local cultural tourism projects and fully enjoy the collaborative advantages and various policy support brought by industrial agglomeration. The future will also serve the communication needs of more provincial cultural tourism attractions, accumulate cultural tourism IP resources and improve profitability.

Investment advice:

The cost structure of the company's main marketing business has been greatly improved, and the performance is expected to reach an inflection point. In addition, the company moved to Changsha to build a digital cultural tourism ecosystem, adding technology such as AI video and AI music to further unleash growth potential, and combine performance restoration with new business growth.

We expect the company to achieve operating income of 63.18/85.57/10.294 billion yuan in 23-25 years, net profit of -4.92/0.50/0.85 billion yuan, and corresponding EPS of -1.94/0.20/0.33 yuan. According to the closing price on March 22, 2024, 24-25 will correspond to 65/39 times PE, respectively, and maintain a “buy” rating.

Risk warning:

Risk of AI tools falling short of expectations; risk of losing core customers; risk of increased market competition; risk of macro-environmental fluctuations.