Incidents:
Flush released its results report for the first quarter of 2024. 24Q1 achieved operating income of 619 million yuan, +1.47% year over year; net profit to mother of 104 million yuan, -15.03% year on year; net profit without return to mother was 99 million yuan, -14.58% year on year; and ROE was 1.41%, -0.26PCT year on year.
Marginal improvement in the company's overall performance
The company's performance improved marginally in 24Q1. 24Q1's revenue was +1.47% year-on-year, and the growth rate was +1.33PCT compared to '23. Net profit to mother was -15.03% year-on-year, with a growth rate of +2.04PCT compared to 23; net profit without return to mother was -14.58% year-on-year, and the growth rate was +0.69PCT compared to 23. The company's overall performance has improved, or it is mainly due to the recovery in market trading popularity, which has led to improvements in the company's value-added telecommunications business and advertising Internet promotion services. The average daily stock turnover in 24Q1 was 885.905 billion yuan, up 1.32% from the full year of '23. Increased trading popularity led to improvements in the company's Level2 market data and stock recommendation software sales.
Both marketing strength and R&D strength have improved markedly
The 24Q1 company's sales expenses, management expenses, and R&D expenses were +27.80%, +14.78%, and +7.63%, respectively. The sales expense ratio, management expense ratio, and R&D expense ratio were 18.19%, 10.46%, and 48.80% respectively, accounting for +6.64PCT, +8.07PCT, and +23.14PCT respectively at the end of 23Q4. Sales expenses have increased significantly, mainly due to the increase in sales staff salaries and advertising expenses due to the company's increased marketing and promotion efforts. The share of R&D investment has increased dramatically. The main reason is that companies continue to increase research and development of artificial intelligence technology applications, especially in the fields of research and development of large models, introduction of high-end talents, and computing power.
In terms of financial expenses, the 24Q1 company's financial expenses were -0.76 million yuan, and related interest income increased by nearly 25.65 million yuan, mainly due to the company's abundant cash, and income related to bank deposit interest increased markedly.
The customer base is good, and product competitiveness continues to improve
On the customer side, by the end of '23, Tonghuashun Financial Network had a cumulative total of 623 million registered users, +1.47% over the same period. The number of weekly active users reached 19.36 million, and the overall customer base was very solid. At the same time, the company continues to increase R&D investment in models and other fields, and product competitiveness is steadily improving. Since 2021, the company's total R&D expenses have reached 3.376 billion yuan, accounting for 30% of revenue. In 2023, the company's self-developed HiThinkGPT financial inquiry model pre-trained financial materials to reach trillion tokens.
Profit Forecasts, Valuations, and Ratings
Considering the current overall weak market performance, we expect the company's revenue for 2024-2026 to be 36.36, 39.36 billion yuan, and 4.356 billion yuan, respectively, with year-on-year growth rates of 2.03%, 8.24%, 10.65%, and a 3-year CAGR of 6.91%. Net profit attributable to mother was 1,426, 15.40, and 1,709 billion yuan respectively. The year-on-year growth rates were 1.65%, 8.06%, and 10.97%, respectively, and the 3-year CAGR was 6.82%. In view of the continuous improvement of the company's artificial intelligence and large model application capabilities, based on comparable company valuations, we maintained a target price of 165.74 yuan and maintained a “buy” rating.
Risk warning: Market trading is sluggish; AI development falls short of expectations.