Incident: The company released its 2023 annual report. During the reporting period, the company achieved operating income of 1,452 billion yuan, +18.17%; net profit to mother of 75 million yuan, -11.92% year over year; net profit after deducting 63 million yuan, -5.59% year on year, mainly due to information promotion, operation services, etc., which accounted for a large share of operating costs over the previous year. Gross profit margin 48.37%, year-on-year -5.61 pct, net profit margin 5.47%, year-on-year -1.40pct.

Looking at a single quarter, in 23Q4, the company achieved revenue of 493 million yuan, +19.22% year on year; net profit to mother of 61 million yuan, +3.62% year on year; gross profit margin of 50.52%, -8.63 pct year on year, +7.71 pct month on month; net profit margin 12.97%, -1.04 pct year on year, +18.20 pct month on month.

The company's revenue increased year-on-year in 2023, and the rapid development of innovative businesses brought growth potential.

In terms of performance, looking at the first quarter: Q1-Q4 achieved revenue of 2.54/4.24/2.82/493 million yuan respectively, +1.19%/+19.06%/+34.96/ +19.22% year-on-year, and net profit to mother was -0.01/0.29/ -0.14/ 0.61 billion yuan, respectively, +96.84%/-31.26%/-331.130%/+3.62% year-on-year, respectively. ② By product: Information promotion/internet effect marketing/operating service fees/brand marketing/product sales/others achieved revenue of 6.76/3.70/2.79/1.22/0.02/0.02 billion yuan, +13.47%/-6.869%/+97.45%/+69.28%/-88.51%/58.26% compared with the same period last year. With the exception of Internet effect marketing and product sales, revenue in all sectors increased year-on-year, mainly due to the company's business development around the three core sectors of consumer content, marketing services, and consumer data, continuously improving the connection efficiency between the B-side and C-side, and the steady development of performance.

In terms of profitability, ① in terms of gross margin, the overall gross profit margin was 48.37% /year over year - 5.61 pct. The main reason was that during the reporting period, the company increased investment to promote the integration of relevant business scenarios with AIGC, but some innovative businesses are still in the early stages, and gross margin still has a lot of room to rise; ② in terms of rate, the overall cost rate was 41.89% /y-1.30pct, of which the sales expense ratio was 18.55%/-1.11pct year-on-year, mainly due to a decrease in advertising and promotion expenses compared to the previous year; management expenses ratio 12.49% /yoy + 0.25pct, mainly due to the expansion of the company's business scale, leading to an increase in employee remuneration, rental costs, travel expenses, business hospitality, etc.; the R&D expense ratio was 11.32% /-0.33pct year over year, mainly due to the company introducing outstanding external talents and integrating internal R&D capabilities to improve R&D efficiency; the financial expense ratio was -0.47% /-0.11pct year on year. The change was due to a decrease in interest expenses due to loan repayment and an increase in interest income on deposits. ③ In terms of net interest rate, the company's net interest rate declined slightly (5.47% /year over year - 1.40pct).

24Q1 revenue increased steadily, and profitability was under pressure. 24Q1 achieved revenue of 296 million yuan/year over year, net profit of 0.23 million yuan, net profit after deduction of 0.16 million yuan, gross profit margin of 42.28% /year on year -7.14 pct, mainly due to increased costs related to proxy operations. The overall cost ratio was 45.67%/-2.95 pct year on year. Among them, the sales expense ratio decreased the most (17.42% /year over year -3.26 pct), net profit margin -7.24%/year-on-year -7.47 pct.

The business is fully AI-based, and the product matrix is fully upgraded. In 2023, using its own unique data resources and corpus, the company independently developed a large model worth buying, and launched a series of applications such as “AI review robot”, “AI purchase suggestions”, and “zdm-copilot creator tool” within the “What is worth buying” app based on this. The new function “Low-Value AI Shopping Assistant” was also officially launched on the “What's Worth Buying” app on February 29, 2024. It can deeply understand user needs through dialogue, quickly summarize real-time consumer experience and price information across the network based on user needs, and generate information such as word-of-mouth summaries, product comparisons, product recommendations, and network-wide price comparisons to provide personalized suggestions to consumers with different decision-making difficulties, thereby improving the quality and efficiency of consumer decisions. By the end of 2023, the number of registered users reached 0.29 million/YoY +9.50%; the average number of monthly active users was 0.39 million/ +1.02%; the mobile app activation volume was 72 million/YoY +11.53%; the website and corresponding mobile apps confirmed that GMV reached 20.918 billion/ YoY +1.230%, and the completed order volume was 197 million orders/YoY +9.649%. In May 2024, the entire AI product matrix of “1 big model, 2 databases, 3 engines, and 4 types of applications” was unveiled. The company became one of the first partners of Dark Side of the Moon (“Kimi+ What's Worth Buying” is already online), and will also launch AI Shopper on the Baichuan Smart Platform to upgrade the core product “What's Worth Buying” app to “What's Native AI Worth Buying GEN2”. We believe that by actively iterating AI products, the company is expected to use AIGC technology and tools to improve the operational efficiency and user experience of “what is worth buying” apps, thereby increasing the number and activity of app users and boosting the company's performance.

Deeply lay out the marketing service sector, and innovate businesses continuously break through new “growth points”. In 2023, innovative businesses accounted for 34.26%, a record high (27.77% in 2022). The main reason is that on the basis of strengthening the core competitiveness of the original business, the company continuously incubated various innovative businesses such as “full-link product and media matching services, consumer MCN, brand marketing”, etc., and gradually established a full range of service advantages. ① Full link service for product and media matching: By including massive merchant resources from Taobao, Tmall, JD and other platforms, accurate human and product matching is achieved, and the entire link's business process is managed based on self-developed technology platforms to help “efficient promotion of merchants” and “efficient monetization of media”. Furthermore, the AI tool “Magic Lantern Material Assistant”, which automatically generates images and text, developed by the subsidiary Xingluo Creative, can effectively improve the level of creative output and content production efficiency in marketing scenarios, and enhance the digital level of enterprises. ② Proxy operation service: Through live e-commerce, brands open up a digital business path from “advertising reach” to “e-commerce transformation”. The “advertising+e-commerce” integrated business model provides development potential for the company to utilize its e-commerce agency operation capabilities, content agency operation capabilities, and big data capabilities. Its subsidiaries help the technology to cumulatively serve nearly 70 domestic and foreign brands and industrial belt source factories. The company is expected to use its existing resources, channels and technological advantages to accelerate and empower innovative businesses, and its share of revenue is expected to further increase, creating a new performance growth curve for the company.

Promote the “worth buying” model to go overseas and further expand the global market. With the booming development of cross-border e-commerce and rapid export growth, more and more companies are going overseas to expand their market and continue to expand their brand influence to seek to seize opportunities in the wider global market. In 2023, it is worth buying to set up an R&D center in Chengdu to be responsible for overseas architecture development, and initially set up an overseas team at the end of 2023 to carry out preliminary preparations such as market research and strategic planning; in the future, the company's overseas business will be implemented through self-management and cooperation. In terms of self-operation, it has already chosen to land in Southeast Asia, and will first stop in Thailand. The internal goal is to launch in mid-April this year, which is expected to turn Thailand into a model project for going overseas.

Investment suggestion: The company is based on the two major cores of “consumer content+consumption data”, using AI as its wing, focusing on the transformation and upgrading of the main site, and improving the “AIGC+ e-commerce” content ecosystem, which will increase content creation capacity and increase the number and activity of users. In the future, the company's overseas business process will be further accelerated, which is expected to boost the company's performance and valuation. The company's net profit for 2024-2026 is expected to be 1.05/1.43/181 million yuan, respectively, and EPS is 0.53/0.72/0.91 yuan, respectively. Corresponding to current PE of 39/29/23 times, respectively, maintaining a “buy” rating.

Risk warning: risk of policy changes, technological development falling short of expectations, recovery of consumer consumption falling short of expectations, risk of changes in the international macro environment, overseas business promotion falling short of expectations