Revenue growth was steady, and earnings such as changes in fair value led to a year-on-year increase in performance. 1) The company disclosed its annual report for the year 23. For the year, the company achieved operating income of 4.915 billion yuan and net profit to mother of 1,258 billion yuan, up 3.78% and 9.15% year on year, corresponding to diluted EPS of 1.02 yuan; realized net profit after deduction of 660 million yuan, down 42.86% year on year, mainly affected by investment income and expense investment; 2) Of these, Q4 achieved operating income of 1,234 billion yuan and net profit to mother of 9.3 billion yuan, up -7.7% and 154.2% year on year, respectively, corresponding to dilution EPS was 0.77 yuan. The sharp increase in net profit due to changes in fair value was mainly due to changes in fair value.
The share of overseas business continues to rise, and the search and advertising business is growing well. 1) The company's overseas business revenue accounted for 86.0%, up 8.4 pcts year on year; overall gross margin reached 78.8% and remained at a high level; 2) Gaming, domestic and overseas social business revenue declined, falling 26.48%, 19.93%, and 9.55% year on year, respectively; the search and advertising business achieved revenue of 11.42 billion yuan and 1,652 billion yuan respectively, up 21.22% and 28.95% year over year; looking at subsidiaries, Leisure Entertainment (board game platform), Skywork (music social networking), and Opera (overseas browsing) (Device and advertising) achieved net profit of 185 million yuan, 3.07 billion yuan, and 1,125 million yuan respectively, and the investment platform subsidiary Kunnuo Win Exhibition achieved net profit of 752 million yuan. The overall performance was good.
R&D continues to increase, and AI and metaverse continue to advance. 1) In fiscal year 23, the company's R&D expenses reached 970 million yuan, a year-on-year increase of 40.2%, and continued to maintain a high growth rate; 2) In terms of large models, the Tiangong model iterated to version 3.0, using the 400 billion parameter MoE architecture, which is currently one of the open source MoE models with the largest parameters and the strongest performance in the world; released China's first music SOTA model, “Tiangong SkyMusic”; 3) On the application side, the first domestic AI search product, Tiangong AI Search; provided by the self-developed AI game “Club Koala” Koala Editor, a codeless game editor, allows players to easily create game levels and party games without any development experience; in addition, the company is also actively developing AI video, AI social networking, etc.; 4) In terms of overseas and metaverse, Q4 Opera's annualized ARPU reached $1.44, an increase of 22% over the previous year. Opera's GX.Store has over 4,500 mods, GX.Games has launched more than 7,000 games, and GX Browser's monthly active users have reached 27.8 million, an increase of 37% over the previous year.
Risk warning: application implementation falls short of expectations; technological progress falls short of expectations; investment business falls short of expectations, etc.
Investment advice: We maintain the profit forecast for 24/25 and add a profit forecast for 26 years. The company's net profit for 2024-2026 is expected to be 8.40/9.96/1,034 billion yuan, up -33.2%/18.6%/3.8% year on year; diluted EPS = 0.69/0.82/0.85 yuan, corresponding to the current stock price PE = 57/48/46x. The company's layout is promising, and it is expected to become a platform company with a big model+application ecosystem in the AIGC era, maintaining a “gain” rating.