Key points of investment
Recently, the company released its 2023 annual report and 2024 quarterly report. The 2023 revenue reached 1,481 billion yuan, up 25.49% year on year, net profit to mother 86 million yuan, up 113.20% year on year, and net profit after deducting 90 million yuan from mother, an increase of 817.45% year on year. 2024Q1 achieved revenue of 358 million yuan, net profit to mother of 0.26 million yuan, an increase of 22.99% over the previous year, and net profit after deducting non-return to mother of 0.23 million yuan, an increase of 26.59% over the previous year.
High performance growth in 2023, cost control achieved results
In 2023, revenue increased 25.49%, net profit to mother increased by 113.20%, and the performance achieved high growth. The main reason was that the cost control effect was good. In 2023, the sales/management/R&D expense ratio was 48.81%/11.16%/27.18%, the sales expense ratio decreased 0.35 pct year on year, the management expense ratio decreased 0.63 pct year on year, and the R&D expense ratio decreased 2.29 pct year on year.
In terms of operating costs, server expenses increased by 85.80% year-on-year, mainly due to the increase in AI server costs, indicating that the frequency of use of AI products by users has increased.
The multi-modal product line grew rapidly, with subscription renewal rates increasing to 961 million yuan, up 28.91% from the same period last year; revenue from creative documents was 130 million yuan, up 30.92% over the same period last year; revenue from creative graphics was 119 million yuan, up 30.52% from the same period last year, and revenue from utility tools was 256 million yuan, up 10.07% from the same period last year.
The multi-modal related product lines (video/documents/drawings) all achieved a high growth rate of around 30%.
Core products have further increased their share of revenue. Online video ideas increased to 64.87% of total revenue, accounting for 63.15% in 2022, an increase of 1.72 pcts. The overall subscription renewal rate increased by 5 percentage points, and the 2022 subscription renewal rate was 60%.
Fully embrace AIGC, big models and applications work together
2023 is the year the company fully embraces AIGC. 1) At the level of basic capabilities, it invested heavily in AI audio and video technology research and development. The annual R&D cost was 403 million yuan, an increase of 15.73% over the previous year. The company released the Wanxing Tianmu Audio and Video Multimedia Model in January '24. 2) At the product level, new AIGC products such as Wanxing Broadcom, Pixpic, TruMate, Kwicut, and Wanxing Zhixian/ were newly released, major versions of the original products were upgraded, and AIGC intelligent functions were launched. 3) At the level of ecological cooperation, Microsoft signed a cooperation agreement to introduce OpenAI commercial services to implement large-scale model capabilities into various overseas products; reached strategic partnerships domestically with HUAWEI CLOUD and iFLYTEK to deepen cooperation in the field of artificial intelligence.
Profit forecasting and valuation
The company continues to improve product strength, continuously improve marketing channels, and actively deploy AIGC. We expect the company's 2024-2026 revenue to be 19.36, 25.10, and 3.247 billion yuan, net profit due to mother of 1.29, 1.80, and 261 million yuan, and EPS of 0.93, 1.30, and 1.90 yuan, maintaining a “buy” rating.
Risk warning
Risk of rising marketing costs; risk of falling short of expectations in emerging markets; risk of exchange rate fluctuations