Matters:

In 23Q4, the company achieved revenue of 790 million yuan, YOY -37%, QOQ +32%, net loss due to mother of 0.29 million yuan, YOY -122%; net loss after deducting non-attributable net loss of 245 million yuan, YOY -398%, mainly due to net loss of 202 million asset/credit impairment losses plus 42 million dollars in fair value changes. The company's cash flow from operating activities in Q4 in a single quarter was 322 million yuan, and the cash flow status was healthy.

For the full year of 2023, the company achieved revenue of 3,078 million yuan, YOY -41%, mainly due to the strategic contraction of the subsidiary's online social networking business; net profit of 663 million yuan (23-year equity incentive target of 645 million yuan, successfully completed the target), YOY +35%, mainly achieved investment income+fair value change income of 234 million yuan during the period (-157 million yuan in the same period last year); net profit of 359 million yuan, YOY -39%, mainly due to loss of asset/credit impairment of 208 million yuan.

Commentary:

After 23 years of separation, the wingman is steady, the social business has shrunk, and digital marketing has grown significantly. In '23, the game business achieved revenue of 1,317 billion yuan (YOY -24%), mainly due to a normal decline in sales after the epidemic and a contraction in purchases; online social networking business revenue of 769 million yuan (YOY -70%), mainly due to the company's strategic contraction of the business; technology information service revenue of 641 million yuan (YOY +6%), which was a relatively steady overall growth; digital marketing revenue of 337 million yuan (YOY +24%), mainly due to the addition of a consolidated subsidiary (Jiutian Interactive Technology Co., Ltd.). The subsidiary split profits. Wingman Network (game+online social networking) had a net profit of 639 million yuan (YOY -9.5%) in 23 years, and Fuchun Cloud (IDC) achieved net profit of 73 million yuan (YOY -16%).

Looking ahead to 24 years, multiple businesses are progressing steadily, and commercialization of the big communication model is expected to begin. 1) Wingman Network: The overall operation tends to be steady. Follow-up suggestions focus on the progress of the boutique strategy; 2) Fuchun Cloud: Hangzhou Fuyang Data Center is operating well, Beijing Sijiqing Data Center infrastructure is completed, and investment revenue is expected to be realized in 24. The construction of the Hangzhou Dajiangdong Fuqi Cloud Data Center is progressing in an orderly manner, and the medium to long term is optimistic about the business as demand for beneficial computing power increases; 3) Communication Big Model: The “Big Communication Model” (Big Media Model) launched by the company's Communications Brain has been officially launched in February and is expected to be officially launched in 24 transformation In the short to medium term, we can focus on implementation progress in the province, look forward to the opening up of the national market in the long term, and expect AI's performance to be realized. Currently, the digital technology sector has built a digital technology matrix including Fuchun Cloud, communication brains, urban brains, and network hospitals, which is expected to have a synergistic effect; 4) Data exchanges:

The company is participating in the Zhejiang Big Data Exchange. Currently, it is progressing steadily and is expected to benefit from the development of the data element market in the long term. In addition, the company is actively expanding its business direction, including focusing on digital marketing business centered on Jiutian Cloud and actively entering the field of online literature.

Investment advice: We are optimistic about the stability and elasticity of the company's business. On the one hand, the wingman network is operating steadily and is expected to maintain steady growth; on the other hand, the company actively lays out a number of digital economy businesses, and there is plenty of room for long-term imagination. Considering the macro and company's business progress, we slightly lowered our previous performance expectations. We expect the company's net profit to be 7.44/8.03/851 million yuan in 2024/25/26 (the previous 24/25 forecast was 955/ 1,136 million yuan), and the current stock price corresponds to 19/18/17 times PE, with reference to comparable company valuations, giving the company a 24-year 25xPE with a target market value of 18.6 billion yuan, corresponding to a target price of 14.7 yuan, maintaining the “recommended” rating.

Risk warning: game flow falls short of expectations; policy regulation risks; competition in IDC's business is fierce; communication brain advancement falls short of expectations; data trading centers are falling short of expectations.