Incident: The company released its 2024 quarterly report, achieving revenue of 730 million yuan (yoy +12.55%) and net profit to mother of 55.23 million yuan (yoy +13.87%).
All business segments are growing, and the profit side is growing faster than the revenue side. 2024Q1 achieved revenue of 730 million (yoy +12.55%), with varying degrees of growth in various business segments.
The gross margin of 2024Q1 was 20.97%, and the gross margin declined due to increased competition in the digital marketing business market; thanks to three fee ratios and the large asset disposal income ($27 million) confirmed from the sale of some bitcoins, the company achieved a net profit of 55.23 million yuan (yoy +13.87%), and the profit side grew faster than the revenue side.
The growth rate of Huawei's business is impressive, and we are optimistic that it will continue to grow. The company has grown significantly as the core advertising agency of Huawei's Whalehong Kinetic Energy advertising system. According to the company announcement, the Huawei business in the 2024Q1 digital marketing business segment increased 112% year over year. Looking ahead to the full year of 2024, Huawei will continue to release new products such as the P70, Nova series, and Questionnaire M5. It is expected that the scale of Huawei terminals will continue to grow rapidly. At the same time, the Jinghong Kinetic Energy advertising system will also further cover more terminal equipment resources through Hongmeng Ecological Construction, which is expected to further attract advertising budgets. The company can be expected to grow as its core advertising agency.
Investment advice: We are optimistic that the company will benefit from the structural dividends of Huawei Whale Hong Kinetic Energy and achieve rapid growth in performance (compared with net profit to mother after excluding the impact of investment income in 2023). We expect to achieve net profit of 3.00/364/418 million yuan in 2024-2026, corresponding EPS of 0.24/0.29/0.33 yuan. The company is a scarce listing target in the Huawei marketing industry chain. It has a certain valuation premium, and is given 40 times PE in 2024, corresponding to a target price of 9.6 yuan for 6 months, giving it a “buy-A” rating.
Risk warning: The macroeconomic recovery process fell short of expectations, the competitive pattern on the media side deteriorated, and competition in the media agency industry intensified.