Matters:
The company released its 2023 annual report and 2024 quarterly report. In 2023, it achieved operating income of 262 million yuan, a year-on-year decrease of 25.84%; net profit to mother achieved -90 million yuan, and non-net profit deducted to mother was -97 million yuan. In the first quarter of 2024, we achieved operating income of 0.31 million yuan, a year-on-year decrease of 54.51%; net profit due to mother - RMB 27 million, and non-net profit deducted from mother - RMB 29 million.
Commentary:
Performance was under pressure in the short term, and gross margin increased markedly in the first quarter. In 2023, the company's revenue declined. In 2023, it achieved revenue of 262 million yuan, a year-on-year decrease of 25.84%; in the first quarter of 2024, it achieved revenue of 31 million yuan, a year-on-year decrease of 54.51%. Net profit to mother was -90 million yuan in 2023, net profit to mother of -0.27 million yuan in 2024Q1, and non-net profit to mother was deducted of 29 million yuan, putting pressure on performance. On the gross margin side, the company achieved a gross profit margin of 56.56% in 2023 (-1.24pct year on year); 2024Q1 achieved 74.43%, a significant increase compared with 2023Q1 (+13.51pct), mainly due to improved control of the 2024Q1 company's operating costs and expenses.
The company continues to increase investment in R&D and actively embraces the AIGC wave. In 2023, the company's sales/administrative expenses/R&D expenses yoy -19.39%/+18.82%/+39%. Among them, R&D expenses have increased significantly, mainly due to the company's current introduction of excellent algorithms, industry application development, and R&D talents, deepening basic R&D fields, broadening the scope of R&D application scenarios, actively embracing the AIGC wave, promoting research and development that empowers the company's capabilities in various business lines, and further increasing R&D investment. In the first quarter of 2024, the company continued to increase R&D. R&D expenses were 44 million yuan, an increase of 33.48% over the previous year, and the R&D expenses rate reached 143.98%.
The company continues to promote research on autonomous multi-modal large models and AIGC systems. The company has built the underlying AI technology platform - Deep Pupil Brain. Deep Pupil Brain is the driving platform for the company's core technology, enabling the technical implementation of the company's artificial intelligence products and solutions. Using the self-developed underlying AI technology platform Deep Hitomi Brain, the company cleaned and preprocessed billions of training data, and trained large models with tens of billions of parameters based on large-scale data. Under massive data, the company developed weakly supervised large model training algorithms based on various modes of images, language, and speech, saving a large amount of data labeling resources. As of the end of 2023, the Company, its holding subsidiaries, and subsidiary companies had a total of 46 valid patents (not including termination and transfer of rights) and 152 valid software copyrights (not including termination and transfer of rights).
Investment suggestions: As a visual AI company, the company has completed product layout in multiple AI segments. AIGC Wave is expected to bring performance growth to the company. Considering the pace of performance release, we expect the company's 2024-2026 revenue to be 4.01, 5.86, and 863 million yuan, corresponding growth rates of 52.8%, 46.3%, and 47.1%; net profit to mother is -0.28, -0.15, and 0.05 billion yuan. The corresponding growth rates are 69.3%, 45.7%, and 135.9%, respectively- 0.11 yuan, -0.06 yuan, 0.02 yuan, maintaining the “recommended” rating.
Risk warning: Industry competition increases risk; AI investment and commercialization fall short of expectations; risk of single customer concentration; risk of data security.