2023 results fall short of our expectations
Innovation Qizhi announced its 2023 results: annual revenue of 1,751 billion yuan, +12.4% year on year; adjusted net loss of 154 million yuan, up 11.4% year on year. The adjusted net loss ratio was 8.8%, narrower than in 2022. Due to business transformation, revenue fell short of our expectations and that of the market.
Development trends
Manufacturing revenue is growing steadily, focusing on high-quality development capabilities. In 2023, the company's revenue from manufacturing was 1,176 billion yuan, +24.1% year on year, accounting for 67.2% of total revenue, +6.3ppt year on year. Separated by industry, automotive equipment/3C high-tech and OLED panel semiconductor manufacturing revenue was 3.9 billion 33/135/123 million yuan, respectively, +37.9%/+26.9%/-8.0% compared with the same period last year. In the field of automotive equipment, the company pioneered the introduction of solutions based on industrial robots to optimize production processes. The company's revenue from Lighthouse customers reached 1.43 billion yuan, +5.7% year-on-year. The total number of Lighthouse customers was 81, an increase of 14.1% over the previous year. ARPU was 18 million yuan, and the repurchase rate of Lighthouse customers in monetary terms was 41.6%.
Improved gross margin and optimized cash flow. In 2023, the company's gross margin was 33.6%, +1ppt year on year; gross profit was 588 million yuan, +16.1% year over year, mainly due to continuous optimization of delivery efficiency and cost control on the company's management side. In 2023, the company's R&D expenses reached 450 million yuan, +8.0% year-on-year. The company firmly invested in large-scale model development and product iteration in industrial vertical scenarios. Net cash flow used in operating activities improved significantly +40.7% year over year to ensure stable operation.
With the multi-modal industrial model as the core, the richness of ChatX products has increased, and the direction of brain-computer signal+large model has been proposed. On March 27, the company upgraded the 75B Kizhi Kong Ming industrial model to support multi-modal processing of text, images, video, and CAD and action commands in the industrial field. Based on multi-modal large model capabilities, the company further enriches its product matrix: 1) ChatVision supports real-time video streaming and offline image video analysis, processing tasks such as inspection, tracking, and planning to help enterprises produce safely; 2) ChatCAD positions itself as an engineer's Copilot, which generates CAD designs through language interaction to effectively simplify the workflow; 3) ChatRobot Pro proposes the direction of brain computer signals+large model pre-research. It collects EEG signals through non-intrusive methods based on large models from end to end EEG decoding completes command issuance and task orchestration, so that industrial robots can be controlled by ideas.
Profit forecasting and valuation
Considering that the company is in a business transformation period, we lowered our 2024e revenue forecast by 45.8% to $2.05 billion, and adjusted net profit to mother from $15 million to -$83 million. A revenue forecast of $2.35 billion was introduced for 2025, with an adjusted net loss of $01 billion to mother. We maintained the company's outperforming industry rating, and considering that the industry valuation center lowered the target price by 52.3% to HK$10, corresponding to 2.3 x 2024e P/S. There is 36.2% upside compared to the current stock price. The current stock price is trading at 1.8 x 2024e P/S.
risks
Competition in the industry is intensifying; business continues to lose money; important customers are being lost; technology iteration is faster than the company's ability to innovate.