Core views:

The company disclosed its quarterly report for '24. 24Q1 revenue was 363 million yuan, +9.7% year over year; profit due to mother was 32.78 million yuan, +2.4% year over year; profit after deducting non-return to mother was 27.03 million yuan, +13.1% year over year.

Revenue grew steadily in 24Q1. During the off-season, the growth of the two major business categories should be balanced. 24Q1 revenue increased 9.7% year over year, a marked increase from 23Q4. Looking at the business model and downstream customers, accounts receivable mainly reflect the company's G-side business situation, while contract liabilities reflect its B-side business situation. 24Q1 accounts receivable were $223 million, up 31% from the beginning of the year. Some G-side projects in 23Q4 may be deferred for acceptance in 24Q1. The 24Q1 contract debt was $736 million, down 10.8% from the beginning of the year. It decreased month-on-month or was mainly affected by the off-season. It increased 21% from 23Q1, and the year-on-year growth rate continued to expand compared to '23.

Operational efficiency has improved, and the G-side business may be further optimized in 24 years. The 24Q1 three-item fee rate was 57.41%, down 1.21pct from 23Q1. Structurally, the R&D expense ratio increased slightly, while the sales expense ratio and management expense ratio declined slightly. Judging from the space that can be optimized, the G-side business is significantly larger. The company's G-side business experienced large losses in '23. As the fourth phase of the 24-year annuity tax gradually moved from the product development stage to the promotion stage, G-side business optimization is expected to be strengthened, thus promoting G-side loss reduction in '24.

I am optimistic about the rapid growth of the company's B-side business in '24. Year 24 is the first year of large-scale promotion of the company's B-side high-value services. We expect that high-value services will be rapidly scaled up, driving the rapid growth of the B-side business.

Profit forecasting and investment advice. It is estimated that in 24-26, the company's net profit to mother will be 275 million yuan, 362 million yuan, and 486 million yuan respectively. The company's business mainly consists of two parts. One is the 2G business. The business model is mainly project-based, and the other is the 2B business. The business model is mainly subscription.

We maintain the company's judgment of a reasonable value of about 38.21 yuan per share. Corresponding to EPS in '24, its PE was 56X, maintaining a “buy” rating.

Risk warning. Macroeconomic fluctuations; increased industry competition; and uncertainty about the contribution of AI applications to performance.