Continued investment in new business led to no increase in revenue in the short term. Optimistic about innovative business development. Maintaining the “purchase” rating, the company's operating income in 2023 was 1,452 million yuan (+18.17% YoY), net profit to mother was 74.78 million yuan (-11.92% YoY); the 2023Q4 company's revenue was 493 million yuan (+19.22% year over year), and net profit to mother was 60.71 million yuan (+3.62% year over year). The decline in profit side throughout the year was mainly due to increased operating costs such as information promotion. The company's 2024Q1 revenue was 296 million yuan (+16.85% year over year), and net profit attributable to mother was 22.71 million yuan (loss increased by 3202.96% year on year). The increase in losses was mainly due to an increase in costs related to proxy operations, and operating costs increased 33.36% year over year to 171 million yuan. We are optimistic about the long-term growth potential brought about by the company's continued investment in innovative business and the prosperity of the AI-enabled content ecosystem, maintaining 2024-2025 and adding 2026 profit forecasts. We forecast net profit for 2024-2026 of 1.21/1.52/187 million yuan, corresponding EPS of 0.61/0.76/0.94 yuan, respectively. The current stock price corresponds to PE of 30.1/23.9/19.4 times, respectively, to maintain a “buy” rating.

Revenue from the innovation business increased dramatically, and technology and labor investment affected short-term profits. The company's innovative business achieved revenue of 497 million yuan (+45.79% year over year) in 2023, accounting for 34.26% of revenue (+6.49pct year over year). The subsidiary Xingluo Innovation is responsible for the innovative business “full-link service for matching products and media”, and achieved net profit of 36.67 million yuan (+43.9% year over year) in 2023, and has grown into a profit growth point that is beginning to take shape. The company's gross margin in 2023 was 48.37% (-5.61 pct year on year), mainly due to a decrease in gross margin of proxy operations (-9.45% to 20.16% year over year) and an increase in revenue share (+7.72 pct to 19.22% year over year); net margin was 5.15% (-1.76pct year over year). 2024Q1's gross margin was 42.28% (down 7.15 pct year on year), mainly due to increased costs related to proxy operations, and the year-on-year increase in losses was mainly due to an increase in management expenses and R&D expenses.

The AI-enabled content ecosystem continues to prosper, expanding overseas or opening up space for growth. In 2023, AIGC accounted for 36.66% of content output (+16.35pct year over year), and AI contributions gradually increased. The average monthly activity of the platform in 2023 was 39.29 million (+1.02% YoY), and user growth drove GMV to reach 20.918 billion yuan (+1.23% YoY). AIGC may enable the improvement of commercial monetization efficiency. The new function “Small Value AI Shopping Assistant” has an overall e-commerce click rate of about 10%. The company is also actively exploring overseas business and is expected to land in Thailand for the first time in April. We are optimistic that the company will expand incremental growth based on “AI+ going overseas” and open up room for performance growth.

Risk warning: the risk of e-commerce policy changes, innovative business development falling short of expectations, etc.