2023 and 1Q24 results fell short of our expectations
The company announced its 2023 results: revenue of 4.20 billion yuan, an increase of 2%; net profit to mother of 92.78 million yuan, a decrease of 48%; deducted non-net profit of 73.67 million yuan, a decrease of 29%. Revenue for 2023 was slightly lower than our expectations, mainly because the innovation business sector progressed less than expected; profit fell short of our expectations, mainly because 2H23 gross margin was lower than expected, and credit impairment losses dragged down profits. At the same time, 1Q24 results were announced: revenue of 970 million yuan, up 1% year on year; net profit to mother of 14.62 million yuan, down 23% year on year; deducted non-net profit of 8.94 million yuan, down 47% year on year. The 1Q24 performance fell far short of our expectations. We mainly determined that revenue side repair progress fell short of expectations, and gross margin continued to be under pressure. Furthermore, the company announced that it plans to pay a dividend of 0.0155 yuan/share (tax included) in 2023, totaling RMB 28.02 million, accounting for 30% of net profit attributable to mother.
Development trends
The main business of celebrity marketing has been steadily restored, and innovative business segments are exploring overseas opportunities. The company's celebrity marketing platform business revenue increased 4% to 4.1 billion yuan in 2023, of which 2H23 also increased 3%, and the company's main business steadily recovered. Among them, we judge that the number of active brands on the merchant side may have decreased slightly compared to the previous year. We believe that under pressure from the external economic environment, the company actively selects customers with better budgets and accounts. In terms of overseas travel, overseas revenue of 10.96 million yuan was achieved in 2023. The company said that the derivative business sector of the celebrity economic ecosystem is actively exploring business opportunities related to overseas markets. Looking ahead to 2024, we recommend continuing to pay attention to external advertisers' budget release trends, while focusing on the increase in AI products and overseas sales in the innovative business sector.
Expense control, gross margin pressure, and credit impairment losses affect profits. In terms of gross margin, it fell 3.7 ppt to 18% year on year in 2023, with 2H23 falling 4.3/2.5ppt to 17% month-on-month. The company said it was mainly due to an increase in media procurement costs. In 2023, this cost also increased by 10%, accounting for 2.9 ppt to 80% of the company's celebrity marketing platform business revenue. The gross margin for 1Q24 was 17.1%, -3.1 ppt/+0.5ppt, respectively. We judge that the company's gross margin will continue or stabilize. Expenses were continuously controlled in 2023 and 1Q24, with sales/management expense ratios of 6.0%/5.1% and 6.5%/5.7%, respectively. In addition, credit impairment losses of 98.11 million yuan dragged down profits in 2023, of which 2H23 was 71.05 million yuan; 1Q24 credit impairment losses were 7.07 million yuan.
Focus on AI marketing empowerment and promotion of global layout. In terms of AI and metaverse applications, the company “Inspiration Island” was approved for the National Internet Information Administration's algorithm registration in April. The company said that since the launch of the Inspiration Island app, hundreds of thousands of creators have completed nearly 10 million content creations. In terms of overseas travel, in 2023, the company launched aDream, a SaaS platform for overseas influencers. The company said it has covered many countries and regions in North America, Western Europe, the Middle East, and Asia. We believe that the company is expected to go overseas along with domestic brands and expand the second growth curve in overseas markets.
Profit forecasting and valuation
Considering that the company's main business is still recovering and gross margin may be under pressure, net profit due to 24/25 was lowered by 29%/40% to 17/190 million yuan. The current stock price corresponds to 46/42 times the 24/25 P/E. Considering that the company has a leading advantage in the field of social marketing, and that AI and overseas layout may gradually contribute, it maintains an outperforming industry rating, and lowered the target price by 36% to 4.5 yuan, corresponding 48/44 times the 24/25 P/E, with an upward space of 4.4%.
risks
The recovery in advertising demand fell short of expectations, the slow progress of innovative business, and AI-related policy risks.