Revenue and net profit increased year over year. 1) In '23, it achieved operating income of 781 million yuan and net profit to mother of 146 million yuan, corresponding to fully diluted EPS of 0.21 yuan; net operating cash flow of 179 million yuan, up 29% year on year; of these, Q4 achieved revenue of 207 million yuan and net profit to mother of 123 million yuan, up 21.7% and 22.3% year on year, corresponding to diluted EPS of 0.03 yuan; 2) Q1 achieved operating income of 175 million yuan and net profit to mother of 0.16 million yuan, respectively. 32.4% and -72.0%, corresponding to EPS of 0.02 yuan; the sharp decline in net profit to mother was mainly due to the impact of investment income in the same period last year. Net profit after deducting non-return to mother reached 16 million yuan, an increase of 88.35% over the previous year.

KA customers maintain high stickiness, and small to medium enterprises strengthen their operational capabilities. 1) The company's KA major customers continue to maintain high stickiness, maintaining a renewal rate of 80% for Changxie customers with annual sales of 100,000 yuan or more; at the same time, through business products such as lock screens, wallpaper themes, and digital collections, it also serves customers including mobile phones such as Huawei, Xiaomi, OPPO, Vivo, Honor, etc., and smart terminals such as TVs; 2) The SME market launches standardized products that meet the needs and budgets of target customer groups, providing an efficient and simple e-commerce transaction service platform with a high degree of self-service. E-commerce platform transaction sales increased from 1% in 2022 to 23% in 2023; 3) C-side, strengthening strategic cooperation with Internet platforms through open API platforms for different content usage scenarios.

The “AI+content+scenario” strategy continues to advance. 1) In terms of content data, it has nearly 500 million high-quality graphic pairs, 800,000 hours of video and music materials, totaling 3 million structured labels and industry knowledge maps; formally signed a strategic cooperation agreement with Baidu and HUAWEI CLOUD and others in July to jointly establish the HUAWEI CLOUD Big Model High Quality Data Alliance. The value of high-quality data is constantly being highlighted and is expected to achieve diversified monetization 2) In terms of scenarios, AI intelligent search has been launched on the company's websites VCG.com, veer.com, and VJShi.com to support image and video search; 3) Utilization AIGC technology empowers B-side customers. Currently, the company's open platform can provide two types of API services, “content resources” and “AI intelligence”. Among them, application products such as AI intelligent search and intelligent mapping provide more efficient, accurate, and professional AI intelligent search/mapping services for business scenarios such as media asset management, copyright applications, marketing tools, and creative tools.

Risk warning: macroeconomic fluctuations; regulatory policy risks; implementation of new technology falling short of expectations, etc.

Investment advice: Lower profit forecasts, and be optimistic that under AIGC, the company may increase copyright value based on content and scenario advantages, and maintain a “buy” rating.

Considering the demand of the downstream advertising industry, we lowered net profit to mother for 2024/25 to be 176/203 million yuan respectively (previous values were 217/226 million yuan, respectively), and added a 26-year forecast of 221 million yuan, corresponding to diluted EPS = 0.25/0.29/0.32 yuan. The current stock price corresponds to PE = 54/47/43x. The AIGC Era Company has significant advantages in copyright operation, data, and creator ecology. It is possible to revalue resources and reinvent business models. In the context of the recovery of the advertising market, revenue and profits are also expected to continue to recover, maintaining a “buy” rating.