Incident: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 10.818 billion yuan, 26.59% year on year; net profit to mother of 192 million yuan, +136.1% year on year; net profit after deduction of 126 million yuan, +79.99% year on year. Gross profit margin 6.33%, YoY +2.00pct, net profit margin 1.76%, YoY +1.24pct.

Looking at a single quarter, in 23Q4, the company achieved revenue of 2,578 billion yuan, or -23.42%; net profit to mother of 78 million yuan, turning a year-on-year loss into a profit (22Q4: loss of 0.45 million yuan); gross profit margin of 7.11%, +2.59 pct year on year, +0.17 pct month-on-month; net profit margin 2.98%, +4.36pct year on month.

Proactively reduce low-margin businesses and significantly improve profitability. 1) In terms of gross margin, the company's overall gross profit margin in 2023 was 6.33% /year on year +2.00 pct; 2) In terms of rate, the company's overall expense ratio in 2023 was +4.53% yoy +1.10pct, sales expense ratio +1.509 yoy +0.28pct; management expense ratio was 2.37% yoy +0.66pct; R&D expense ratio was 0.61% yoy +0.24pct, mainly due to accelerating R&D iteration of “AI+” application products; financial expense ratio was 0.05% yoy 0.08pct, major companies Due to strengthening the efficiency of fund management and use, targeted additional funds raised in the second half of the year; 3) In terms of net interest rate, the company's net interest rate in 2023 was 1.76% /year over year +1.24pct. During the reporting period, the company's performance marketing business sector actively adjusted its business strategy, raised the customer entry threshold, and reduced low-profit businesses. Although operating income declined, net profit to mother rose sharply, and business quality was boosted.

Brand marketing continues to take a leading position in market share, and effect marketing continues to deeply cultivate multiple industry tracks. ① Brand marketing: Continuing the leading market share in the automotive industry segment, achieving annual revenue of 3,043 billion yuan +15.12% year on year, obtaining high-quality customer resources such as BYD, BAIC New Energy, Celis, and Xiaopeng Motors, and expanding the fields of PR, experiential marketing, media procurement, and content marketing in related industries such as finance, FMCG, games, operators, etc., to promote in-depth integration of brand marketing services, achieve quality and efficiency collaboration, and upgrade the brand's digital marketing model. ② Effective marketing: The company continues to be deeply involved in e-commerce, online services, gaming, finance, education and mass consumer industries, focusing on high-quality leading customers, and maintaining long-term close cooperative relationships with media such as Headline, Tencent, and Kuaishou. Its subsidiary, Perry Wei, had outstanding results: Man Xiaofu and Heat [] The animation IP “Tianguan Ci Fu” teamed up to create a joint new product launch, with sales exceeding 2 million in the opening hour, and the first broadcast surpassed 4 million; helping Mo Xiaoxian's GMV exceed 600,000 yuan at the Douyin New Year Festival, with more than 500,000 viewers and more than 1.7 million product impressions. The company continues to be deeply involved in the field of brand and effect marketing to provide customers with full-link marketing services. It has formed a scale effect and industry influence. With the recovery of the advertising industry, the company's orders and performance are expected to recover at an accelerated pace.

The innovative business segment deepens the application of AIGC technology and comprehensively enters the construction of a digital cultural computing power base. ① Digital technology: The company strengthened digital marketing and strategically upgraded digital culture technology. Its subsidiary, Zhejiang Wenmita, achieved auxiliary creation in the field of AI painting, created a Yuanzi Zhou creator community, achieved 470,000 registered users, built a multi-modal AIGC digital tool matrix such as images, text, and scenes, incubated business tracks such as digital virtual people, AIGC creator communities, automotive metacosphere, cultural tourism metaverse, etc., and launched the AIGC painting tool “Mi Wen”, the Wenshengwen tool “Mi Wen”, and “Metaverse” Tool apps such as “Digital Warrior” Many well-known virtual human IPs such as “Jun Ruojin” and “Lan LAN” have been launched, providing new social and life experiences, and commercial applications have been launched one after another. ② Computing power infrastructure: Zhejiang Intelligent Computing (Zhejiang) Technology Co., Ltd., a wholly-owned subsidiary, was established to provide computing power base services for AI-related business and digital culture development, lay out and develop computing power infrastructure business, and accelerate the construction of an ecologically driven digital culture industry system. We believe that the company anchors the construction of the digital culture sector, actively promotes “AI+”, and optimizes the layout of computing power infrastructure, which is expected to further enhance the enabling effect of innovative businesses on the development of digital marketing, digital culture, virtual people, etc.

Investment suggestion: As a state-owned digital culture technology company with relative holdings and industry-leading digital culture technology companies, the company's business advantages are obvious. “Improving stock and expanding incremental growth” is expected to continue to consolidate the construction advantages of digital marketing, drive high-quality development through digital marketing, digital culture, and computing power layout. While... maintaining the leading position in brand marketing in the automotive industry, it will continue to expand horizontally into cultural innovation, finance, consumer and other industries, and focus on promoting overseas business layout, which is expected to boost valuation and performance. It is estimated that in 2024-2026, the company's net profit to mother will be 2.43/2.74 billion yuan, and EPS will be 0.16/0.18/0.20 yuan respectively, corresponding to the current PE of 29/26/24 times, respectively, maintaining a “buy” rating.

Risk warning: risk of economic environment and market fluctuations, risk of rising operating costs, risk of foreign investment falling short of expectations, risk of collaborative business development falling short of expected policy changes