1Q24 Profit side falls short of our expectations
Revenue for 1Q24 was +1.5% year-on-year to $620 million, net profit to mother -15.0% to $100 million, and net profit per share was 0.19 yuan. The revenue side was steady and basically in line with our expectations. The profit side was lower than our expectations, mainly due to continued increase in sales and R&D efforts, driving the cost-side growth rate higher than expected.
Development trends
The revenue side may be affected by the pace of receipts and confirmations, but overall it remains steady. The average daily ADT of the 1Q24 A-share market was slightly +2% to 895.4 billion yuan, the Shanghai and Shenzhen 300 +3.1%/GEM index -3.9%/the Science and Technology Innovation Board index -10.5%, and the share of new equity funds was -42% YoY/-14% YoY to 54.6 billion shares. By business, we estimate that the ToB business represented by the financial data terminal iFind has maintained steady growth; the To C stock trading software sales business was affected by market fluctuations, and users' demand for financial information declined, leading to a decrease in sales receipts (the company received -12% to 660 million yuan in cash from selling products and providing labor services in 1Q24); in terms of advertising and Internet business promotion services, despite an increase in user activity (QM statistics, the average MAU for Tonghuashun App 1Q24 +3.4% month-on-month to 3,010 10,000 people), but revenue may be affected by the pace of settlement confirmation with partner account openers and brokers/futures companies. In terms of forward-looking indicators, advance payments (contract liabilities and other non-current liabilities) at the end of 1Q24 were +0.4% month-on-month, +3.1% to 1.21 billion yuan, or provide some support for subsequent revenue recognition; looking ahead, we expect that in the current context of financial fee cuts and early price increases in the same industry, the growth rate of the company's iFind business is highly deterministic, driving steady growth in the B-side business. At the same time, on the basis of continuous growth in the company's users, subsequent market improvements, the company's C-side business, including stock trading software sales/advertising/fund sales, etc. sex.
Sales and R&D efforts continued to increase, and high costs dragged down profit-side performance. 1Q24's sales expenses were +28% to 110 million yuan, and the sales expenses rate was +3.7ppt to 18.2% year over year, mainly due to increased sales staff remuneration (mainly to B business sales) and advertising expenses; R&D expenses were +7.6% to 300 million yuan, and R&D expenses were +2.8ppt to 48.8% year over year. The main ones continued to increase AI technology application research and development, especially in large-scale models, and increased investment in fields such as introduction of high-end talents and computing power. 1Q added software copyright registration in big data/AI and other areas 21 patents and 18 new invention patents were granted; administrative expenses were +15% compared with the same period. The high increase on the overall cost side dragged down profit-side performance to a large extent; however, it should be noted that the company's performance had strong seasonal factors throughout the year and was unevenly distributed across quarters.
Consolidate the advantages of AI, accelerate the integration and exploration and monetization of large models with existing products and services. The C-terminal iFinance optimizes multi-round conversation capabilities and enhances user and product experience. The B-side combines iFind terminals to create differentiated capabilities, such as financial terminal assistant/intelligent research summary/EDB database search based on natural language dialogue. In addition, the big model directly empowers financial customers, and also combines products with customers in different industries (such as programming assistant products HiPilot, “legal AI”, AI education and teaching products, etc.).
Profit forecasting and valuation
Considering that the cost side exceeded expectations, the profit for 24/25 was reduced by 3%/6% to 16.6/2.09 billion yuan. The company is currently trading at 37x/29x 24/25e P/E; considering the impact of market sentiment, the target price was lowered by 13% to 166 yuan, corresponding to 54x/43x 24/25e P/E and 48% upward space; maintaining an outperforming industry rating.
risks
The market fluctuates greatly, regulatory uncertainty, industry competition intensifies, and progress in AI implementation falls short of expectations.