On March 27, the company released its 2023 annual report. The company achieved operating income of 3,078 billion yuan for the full year of 2023; net profit attributable to shareholders of listed companies was 663 million yuan, +34.91% year-on-year; and non-net profit attributable to shareholders of listed companies was 359 million yuan, or -38.95% year-on-year.

The digital economy continues to develop, driving the company's performance improvement. The company achieved operating income of 3,078 billion yuan for the full year of 2023, which was mainly due to a 70.2% year-on-year decline in the size of the company's online social networking business, but the gross margin of the business increased by 12.54 pcts year on year, and operating efficiency improved; in 2023, the company's net profit margin was 22.44%, an increase of 11.72 pcts year-on-year, mainly due to proper control of the company's sales expenses and operating costs; deducted non-net profit attributable to shareholders of listed companies of 359 million yuan, compared to -38.95% year on year, mainly due to companies and subsidiaries confirming long-term asset impairment Losses increased over the same period last year; the company's sales/management/financial expense ratios were 13.77%/15.15%/-0.41%, respectively, with year-on-year changes of -13.15pct/7.57pct/-0.35pct, respectively. Among them, the reduction in sales expenses was mainly due to a reduction in the marketing expenses of subsidiaries, while the increase in management expenses was affected by the decline in the scale of revenue.

With the digital culture business as the core, we promote the high-quality development of the main business. In 2023, the company's digital culture business revenue was 2.51 billion yuan, accounting for 81.55% of total revenue. The company's digital culture business is mainly composed of the gaming business that the subsidiary Wingman Network is responsible for. In the same year, Winger Network achieved operating revenue of 2,211 billion yuan and net profit of 639 million yuan, contributing strong profit support to the parent company. Since 2023, casual social games represented by whipped eggs have become popular all over the country. The company's winger online whipped egg game app has accumulated over 1 million DAU, becoming the first domestic whipped egg game app with daily active users exceeding 1 million, and the level of game refinement has increased markedly.

The digital technology business is growing steadily, and the data operation business is exploring innovation. In terms of digital technology, the Fuchun Cloud Technology Data Center achieved operating revenue of 388 million yuan and net profit of 73 million yuan in 2023; Communication Brain Technology Co., Ltd. launched a large-scale vertical model for the media industry in February 2024, the Communication Big Model, which is the first large-scale media vertical model developed by a domestic media technology company to pass the registration. In terms of data operation, in 2023, Zhejiang Big Data Trading Center actively participated in Zhejiang's national data element comprehensive reform pilot work, leading the completion of the industry's first data asset evaluation pilot.

Maintain a “Highly Recommended” investment rating. Considering the company's various business developments, we slightly lowered our profit forecast. We expect the company's revenue for 2024-2026 to be RMB 3.386/37.24/4.097 billion, with year-on-year growth rates of 10%/10%/10%, respectively; net profit to mother of RMB 7.69/820/936 billion, respectively, with year-on-year growth rates of 16%/7%/14%, corresponding to current stock price-earnings ratios of 18/17/15 times respectively, maintaining the “Highly Recommended” investment rating.

Risk warning: risk of macroeconomic fluctuations, risk of industry policy changes and market competition, management risk of multi-sector layout, etc.