Key points of investment
Incident: The company achieved operating income of 10.818 billion yuan in 2023, a year-on-year decrease of 26.59%; net profit to mother was 192 million yuan, an increase of 136.10% over the previous year. No transfers, no dividends.
The digital marketing business has been optimized and upgraded, gross profit margin and cash flow continue to improve, and AI tools are used to empower the marketing center.
The company's main digital marketing business is divided into two major segments: brand marketing and performance marketing. Among them, the brand marketing business has always maintained a leading position in market share in the automotive industry, achieving annual revenue of 3,043 billion yuan, an increase of 15.12% over the previous year. While continuing to deepen cooperation with leading NEV customers, it has expanded non-automotive customers such as FMCG and finance, and achieved breakthroughs in the fields of operators such as China Telecom and China Mobile; while focusing on high-quality customers, the customer structure was optimized, and inefficient businesses achieved a significant increase in gross margin throughout the year on the basis of revenue reduction .
The computing power infrastructure+application implementation pattern was initially completed. The innovative business segment focuses on “AI+ culture” and “AI+ content creativity” to further build a smart content ecosystem platform, accelerate the R&D iteration of “AI+” application products, and fully enter the digital culture computing power base. Application side: The company's virtual human IP “Jun Ruojin”, “Lan LAN” empowers B-side customers in e-commerce live streaming, IP endorsements, e-sports commentary, etc.; the AI digital human production platform “Star Sound Generation” provides diverse AI digital human applications for the brand and cultural tourism industry; AIGC painting tool “Rice Painting”, the Wenshengwen tool “Digital Warrior”, the metaverse scene generation tool “Digital Warrior”, and marketing vertical industry copywriting models have entered a new stage of commercial application; launched the “MR Star Project” to promote cultural IP brand IP and brand IP into a new stage. Computing power infrastructure side: Zhejiang Intelligent Computing (Zhejiang) Technology Co., Ltd., a wholly-owned subsidiary, was established to provide computing power infrastructure and solutions for AI-related business and digital culture development, and used Zhejiang Cultural Investment's strategic partners such as Zhijiang Laboratory to strengthen external cooperation in cutting-edge technology and application research and development, continuously promote the deepening and implementation of the digital culture industry, and accelerate the construction of an ecologically driven digital culture industry system.
The digital industry continues to grow in collaborative culture digitalization. The Fifth Plenary Session of the 19th CPC Central Committee proposed the strategic goal of building a strong cultural nation by 2035, and clearly laid out “implementing a digital strategy for the cultural industry to accelerate the development of new cultural enterprises, cultural business formats, and cultural consumption models.” The value added of the cultural industry in Zhejiang Province reached 7.1% of GDP in 2023, and the cultural industry is already an important part of the modern industrial system. During the reporting period, the company completed targeted increases, and the shareholding ratio of Zhejiang Cultural Investment's wholly-owned subsidiary Bowen Investment and its co-actors increased to 16.47%, further strengthening its control over the company. After the 800 million financing, 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 the “main platform for digital culture technology” under Zhejiang Cultural Investment, the company will work with the controlling shareholders to help build a strong cultural province in Zhejiang.
Investment advice: While the company has significantly increased gross margin and net profit by optimizing traditional marketing services, it continues to invest in and vigorously embrace AI+, further build a smart content ecosystem platform, and fully enter the digital culture computing power base. We adjusted our original 24/25 company forecast. The estimated net profit from 2024 to 2026 is $230/2.75/324 million (previously forecasted net profit of $343/432 million yuan for 24/25) EPS was $0.15/0.19/0.22; PE was 30.3/25.3/21.5; maintaining a “buy-A” rating.
Risk warning: AI and computing power business development falls short of expectations, macroeconomic downturn, risk of impairment of goodwill and assets, and risks associated with increased market competition.