Core views
2024Q1 achieved revenue of 619 million yuan, a year-on-year increase of 1.47%; net profit to mother was 104 million yuan, a year-on-year decrease of 15.03%. With 2024Q1, the company received 660 million yuan in cash from sales of goods and services, a year-on-year decrease of 11.7%; as of 24Q1, contract liabilities reached 1,116 billion yuan. Specifically, market activity improved year-on-year in 24Q1, but market style differentiation suppressed the company's demand on the C-side; at the same time, profit margins declined year-on-year due to increased sales and R&D investment; in the future, we need to pay attention to the further driving force of the company's self-developed model on the B-side and C-side.
occurrences
The company released its financial report for the first quarter of 2024.
Brief review
Market activity improved year-on-year in 24Q1, but market styles were divided, and demand on the C-side was suppressed. The 2024Q1, SSE 50, and Shanghai and Shenzhen 300 indices rose 3.8% and 3.1%, respectively, while the China Securities 1000 Index fell 7.6%. The A-share market turnover was +0.76% YoY, while the China Stock 1000 range turnover was -12% YoY. Market styles are fragmented, blue chip markets are stabilizing, small and medium market capitalization stocks are underperforming, and individual investors' trading activity suppresses the willingness to pay for Tonghuashun C-end products. As a result, the “sales cash flow” category representing sales receipts fell 11.7% year on year, and operating income also maintained a relatively low growth rate.
Profit margins declined year over year due to increased sales and R&D investment. 2024Q1, the company's net profit margin was -3.26pct to 16.78% year on year, mainly due to increased investment on the company's expense side: 1) Sales expenses increased 28% year over year to reach 113 million yuan, and the sales expenses ratio increased 3.75 percentage points year on year to 18.19%. The increase stemmed from strengthening marketing and promotion efforts, which led to an increase in sales staff remuneration and advertising expenses; 2) R&D expenses increased 7.63% year over year to 302 million yuan, and R&D expenses increased 2.79 percentage points to 48.80% year on year. Mainly due to the company's increased investment in AI-related R&D, especially in fields such as big models, introduction of high-end talents, and computing power.
The company released its own large model HiThinkGPT in January. The AI functions of B-side and C-end products were gradually improved, and further progress was made in cooperation with securities companies in large model research and development. It is expected that with continued investment in technology and marketing, the company's product strength will continue to gain market recognition and maintain steady revenue growth, but the net profit level will face some pressure in the short term. From 2024 to 2026, the company's revenue is predicted to be 3,897 billion yuan/4.825 billion yuan, net profit to mother of 1,415 billion yuan, 1,510 billion yuan, and 1,738 billion yuan. As of 2024/4/25, the corresponding PE valuation is 42.18x/39.53x/34.35x, maintaining the “buy” rating.
Risk analysis
The risk of increased capital market volatility. It means that market uncertainty has increased due to various factors, causing investors to face risks such as falling asset values and unstable investment returns. These factors may include changes in the macroeconomic environment, policy adjustments, and fluctuations in company performance. As these factors change, investors' confidence may be affected, leading to increased market volatility and investors at risk of loss. Therefore, in the capital market, investors need to maintain rationality, pay attention to market dynamics, and formulate reasonable investment strategies to reduce the risks caused by fluctuations. At the same time, regulators also need to strengthen market supervision, maintain market order, and protect the legitimate rights and interests of investors.
The risk of business development falling short of expectations. It refers to the various uncertainties and risks that the company may face in the process of business development, causing business growth to fail to meet the expected goals. This risk may stem from various aspects such as changes in the market environment, the rise of competitors, and the impact of technological innovation. To deal with this risk, companies need to develop comprehensive strategic plans, strengthen market research and competitor analysis, and continuously improve their competitiveness and adaptability. At the same time, the company also needs to pay attention to risk management, detect and resolve potential problems in a timely manner, and ensure the steady development of the business.
The risk that AI technology and applications will fall short of expectations. Despite significant advances in artificial intelligence technology over the past few years, there are still many uncertainties and risks. First, the pace of AI technology development may be affected by various factors, including technical bottlenecks, lack of funding, and policy restrictions. These factors may cause AI technology to develop at a slower pace than expected, thereby affecting the development of related applications.