The company released its 2023 annual report, with operating income of 4.915 billion yuan, +3.78% year on year; net profit of 1.258 billion yuan, +9.15% year on year; basic earnings per share of 1.05 yuan, +8.25% year on year; of these, revenue for the fourth quarter was 1,234 billion yuan, -7.73% year over year; and net profit to mother was 9.3 billion yuan, +154.02% year over year.
Annual results continued to grow steadily, and the share of overseas revenue rose further. The company achieved net profit of 1,258 billion yuan in 2023, an increase of 9.15% over the previous year, after deducting net profit of 660 million yuan from non-return to mother. It is proposed to distribute 0.5 yuan for every 10 shares, for a total cash dividend of 607.504 million yuan. Net income from fair value changes for the full year of 2023 was $1,283 million, of which the recurring profit and loss portion (subsidiary equity investment) and the non-recurring portion reached $659 million (financial assets held by Opera). By business, the company's annual revenue from games, domestic social networks, and overseas social networks decreased by 26%, 20%, and 10%, respectively, and the search and advertising business increased by 21% and 29%, respectively. In 2023, the company's exploration efforts in the field of AIGC technology continued to increase. R&D expenses increased by 40.2% year on year to 970 million yuan, and overseas business revenue accounted for 86.0%, up 8.4 pct year on year.
Net profit increased year-on-year in the fourth quarter due to the impact of investment business. The company's Q4 net profit was 930,000 yuan, an increase of 154.02% over the previous year, mainly due to the disposal of financial assets held by Green Vanadium New Energy and its subsidiary Opera. The total operating cost was 1.03 billion yuan, which was basically the same as the previous year. Net profit after deducting non-return to mother was 385 million yuan, an increase of 37.84% over the previous year. Q4 Non-recurring profit and loss of $545 million, mainly due to changes in the fair value of financial assets of subsidiaries.
Tiangong series products maintain high-frequency iteration, and diversified AI application layouts open up room for growth. On April 17, the company's MoE model “Tiangong 3.0” officially began public testing and simultaneous open source. Using the 400 billion parameter MOE architecture, many evaluation indicators reached the world's leading level. The company also released a new version of Tiangong AI intelligent assistant, updated the multi-agent ecosystem, and launched China's first music SOTA model, “Tiangong SkyMusic”, to meet the diverse needs of users. In terms of AI games, the company's self-developed AI game “Club Koala” officially began testing the alpha version on April 18. Opera's fourth-quarter 2023 annualized ARPU reached $1.44, up 22% year over year. At present, the company has formed a diverse AI business matrix such as AI big models, AI search, AI music, AI video, AI social networking, and AI games. As related products are gradually implemented, it is expected that the commercialization space will be further expanded.
A draft equity incentive plan was issued to further strengthen core AI technical talents and competitiveness. On March 30, the company announced the first restricted stock incentive plan for 2024 (draft). The number of restricted shares to be granted to incentive recipients is 62.4619.41 million shares, accounting for about 5.1409% of the company's total share capital. The award price is 19.63 yuan/share, and the revenue targets corresponding to the assessment for 2024-2026 are 5.5 billion yuan, 6 billion yuan, and 6.5 billion yuan respectively. The incentives include core technical personnel, with the aim of consolidating the competitiveness of high-quality talents and core technology.
Maintain a “Highly Recommended” investment rating. The company has developed its own big model and actively embraces innovative technology. It has now formed six major AI business matrices: AI big model, AI search, AI game, AI music, AI animation, and AI social networking, which is expected to further broaden the commercial monetization space in the long term. We expect the company's revenue to reach $55.1/60.6/6.56 billion yuan in 2024-2026, and net profit to mother of 8.7/10.3/1.07 billion yuan, corresponding to 53.9/45.8/44.1 times the price-earnings ratio, respectively.
Risk warning: Model iteration falls short of expectations, commercialization of business in fields other than artificial intelligence falls short of expectations, increased market competition, stricter regulations, etc.