The company's recent situation

The company recently updated the 5.0 version of the new big model. The model capabilities were upgraded again, and the GPT-4Turbo was fully benchmarked. The company's strategy for 2023 focuses on generative AI, commercialization and technological innovation; furthermore, the company's fundamentals are expected to improve significantly in 2024, and we expect revenue growth and loss reduction to be expected.

reviews

The big model era has broad space. Supply-side model capability is currently the core element. The company's big model capability is leading domestically, and the commercialization process can be expected. In 2023, Shangtang Technology's strategic adjustments focused on generative AI. The business revenue in this field increased 200% year over year, accounting for 35% of revenue, beginning a period of rapid growth. On the model side, the company launched a new 5.0 model in April 2024. Based on more than 10TBTokens of training and hundreds of billions of synthesized data, the company fully benchmarked GPT-4 Turbo in terms of performance. On the computing power side, in 2023, the total operating computing power of the Shangtang device exceeded 12,000 P, double the previous year, and launched a total of 45,000 GPUs. According to the public results conference, the company plans to double its computing power in 2024. On the commercialization side, the company focuses on B-side implementation. It has established benchmark cases with companies such as Jinshan Office and Xiaomi, leading in coding capabilities and mid-size model capabilities on the end side. It is expected to launch leading Wensheng video results within 2024.

On the fundamental side, revenue recovery and loss reduction can be expected. In 2023, the company's revenue scale was redivided into three major segments: generative AI, traditional AI business, and smart car business. The company expects the AIGC business to achieve 50% CAGR from 2023 to 2028. We believe that most of the current revenue comes from the deployment of large models on the training side and the empowerment of computing power. The long-term driving force may usher in scale effects from inference side APIs, and the company's total revenue growth CAGR is expected to reach 30% from 2023 to 2028. On the profit side, the company's strategy was established to reduce traditional AI business and independent financing of the Amazing Picture Plan, combined with the strategy to improve human efficiency and reduce losses.

On the trading side, the pressure on major shareholders to reduce their holdings has gradually eased, and the positive inflow of foreign capital is expected to provide support.

Since the beginning of 2023, Alibaba Group and SoftBank Group have gradually reduced their holdings. Among them, Alibaba sold all of its holdings at the end of 2023. On April 3, 2024, SoftBank reduced its shareholding ratio to 4.8% (less than 5% will not be disclosed). We believe that the pressure brought about by the majority shareholders of Shangtang is gradually easing at this stage; furthermore, we believe that the inflow of foreign capital is expected to support the Hong Kong stock market.

Profit forecasting and valuation

We are optimistic about the profit side improvements brought about by the transformation of the company's business strategy. We lowered our 2024 loss forecast by 44.1% to -660 million yuan, introduced the 2025 revenue forecast/adjusted net profit of $54.0/-40 billion, and kept the target price of HK$2 unchanged, corresponding to 13.9x 2024e P/S. There is 19.0% room for growth compared to the present, and is currently trading at 11.7x 2024e P/S.

risks

Technological innovation is faster than the company's development speed; industry competition is intensifying; repayment risk.