Incident Overview
On the evening of April 19, 2024, Zhejiang Internet released its annual report. The company achieved operating income of 10.818 billion yuan in 2023, a year-on-year decrease of 26.59%, and realized net profit of 192 million yuan to mother, an increase of 136.10% over the previous year.
Profit levels and cash flow continued to improve. In 2023, the company's overall gross margin was 6.33%, up 2.00pct from the same period last year, and the net profit margin was 1.76%, up 1.24pct from the same period last year. The annual net operating cash amount was 366 million yuan, the first time since 2020 that it changed from negative to positive, and the company's operating quality improved significantly. In terms of cost ratio, due to the company's optimization of the customer structure, the cost rate (denominator reduction) increased. The sales expense ratio was 1.50%, up 0.28 pct from the same period last year, the management expense ratio was 2.37%, 0.66 pct higher than the same period last year, the R&D cost rate was 0.61%, 0.24 pct higher than the same period last year, and the financial expenses rate was 0.05%, down 0.08 pct from the same period last year, mainly due to the company's strengthened capital management and reduced loan and interest expenses.
Continuing to consolidate the leading position in automobile brand marketing and deepen into the “AI+” innovative business layout in 2023, the company's brand marketing business continued to occupy a leading position in the automotive industry segment, achieving revenue of 3,043 billion yuan, an increase of 15.12% over the previous year, while further expanding non-automotive customers such as FMCG and finance, and achieving breakthroughs in the operator sector; in terms of effect marketing, the gross margin increased markedly throughout the year; in terms of innovative business, the company focused on “AI+ culture” and “AI+ content ideas” ”, further built a smart content ecosystem platform, accelerated the R&D and iteration of “AI+” application products, and fully penetrated into the construction of a digital cultural computing power base, and established a wholly-owned subsidiary Zhejiang Intelligent Computing (Zhejiang) Technology Co., Ltd., to provide computing power infrastructure and comprehensive solutions for AI-related business and digital culture development, and accelerate the construction of an ecologically driven digital culture industry system.
Steady growth has strengthened state-owned assets holdings. Relying on Zhejiang Cultural Investment's digital resources to continue to anchor “AI+” in 2023, the company completed the targeted issuance project, and the shareholding ratio of Zhejiang Cultural Investment's wholly-owned subsidiary Bowen Investment and its co-actors increased to 16.47%, further strengthening control over the company. After the fixed increase was completed, the company's financial strength and resource integration capabilities were fully strengthened, laying a solid foundation for the company's sustainable and healthy development. As a pioneer and leader in the national digital economy, Zhejiang Province listed digital economy innovation and quality improvement as the “No. 1 development project”. Zhejiang Internet is expected to rely on Zhejiang cultural investment industry resources to achieve industry-finance interaction, continue to anchor “AI+”, and further open up new growth space.
Investment advice: Maintaining an “Overweight” rating
According to the latest financial report, we adjusted our profit forecast for the company: the 2023-2025 revenue forecast was adjusted from 167.12/177.15/ (unpredicted) billion yuan to 113.59/119.27/12.524 billion yuan, adjusted net profit due to mother from 2.99/3.40/ (unpredicted) 100 million yuan to 2.60/2.84 billion yuan, and adjusted the diluted EPS from 0.20/0.23/ (unpredicted) yuan to 0.17/0.19/0.21 yuan, corresponding to April 19, 2024 The closing price of 4.63 yuan/share per day, PE was 26, 24, and 22 times, respectively, maintaining the “Overweight” rating.
Risk warning
Risk of impairment of goodwill; risk of market competition; risk of loss of core technical talent.