1Q24 net profit was better than our expectations
The company announced 1Q24 results: main business revenue of 380 million yuan, +11.0% year on year; net profit to mother of 76.73 million yuan, +57.9% year on year; net profit after deduction of 72.97 million yuan, +57% year over year, better than our and market expectations, mainly due to the company's cost and expense control being better than expected.
Development trends
The revenue growth rate recovered as scheduled. The company's 1Q24 main business revenue was +11% year over year, recovering significantly from the same period last year (-0.3%), mainly benefiting from the recovery in China Manufacturing Network (MIC) cash payment growth rate (+16.9% YoY in 2023, compared to +3.6% in 2022).
The MIC base plate trend is upward. By the end of the first quarter, the company's advance payments (contract debts+other non-current liabilities, etc.) were +16.3% year-on-year, continuing the 4Q23 growth trend. At the same time, MIC member subscription contracts were strong, and the number of paid members increased by 432 to 25,018 from the end of 2023, laying a solid foundation for revenue growth throughout the year.
The number of AI Michael members continues to grow. The number of 1Q24 AI Michael members reached 4,641 (excluding trial package customers), an increase of about 600 over the end of '23. The company continues to strengthen AI application capabilities. Following the implementation of various applications for graphic generation in 23, the company launched the AI Michael video generation function in February '24 to enable video production for foreign trade enterprises. More functional value points will follow. We expect AI-related applications may bring greater growth to the company's performance.
Profit performance exceeded expectations. 1Q24's net profit was +57.9% YoY, mainly due to better-than-expected cost and expense control, gross margin +0.3ppt to 78.5% year over year, sales/management/R&D expenses ratio -3.9/+0.7/-0.3 ppt to 36.6%/11.2%/12.4% year-on-year, and net profit margin +6ppt to 20.1% yoy. We believe that increased certainty in revenue growth and good cost control are expected to lay the foundation for the company to achieve better profit performance throughout the year, and the company's current valuation is still at a low level. As an AI application target with high performance certainty and reasonable valuation, we repeat our recommendation.
Profit forecasting and valuation
Since the company's cost control was better than our expectations, we raised 24e/25e EPS 3.8%/4.7% to 1.59/1.98 yuan, corresponding to a 6% increase in target price to 44 yuan, maintaining the company's outperforming industry rating. The company's current stock price corresponds to 20x 2024e P/E, and the target price corresponds to 28x 2024e P/E, with 36% upside compared to the current stock price.
risks
AI product promotion fell short of expectations; Chinese manufacturing substitution effects weakened; geopolitical and macroeconomic environments affected international trade.