Incident: The company announced its 2023 annual report. In 2023, the company achieved revenue of 10.818 billion yuan, -26.59% year on year, net profit to mother of 192 million yuan, +136.10% year-on-year, after deducting net profit of 126 million yuan without return to mother, +79.99%. With 2023Q4, the company achieved revenue of 2,578 billion yuan, a year-on-year net profit of -23.42%, and net profit attributable to mother of 78 million yuan, reversal of year-on-year losses. 2024Q1, the company achieved revenue of 2,037 billion yuan, -27.14% year on year, net profit to mother of 0.25 million yuan, or -33.70% year-on-year, net profit after deducting non-return to mother of 0.25 million yuan, or -34.61% year-on-year.
The digital marketing market position continues to be stable, and the business is fully optimized and upgraded. In 2023, the company's digital marketing business achieved revenue of 3,043 billion yuan, +15.12% year-on-year. 1) From a structural perspective, the brand marketing business continues to have a leading market share in the automotive industry segment and obtained high-quality customer resources such as BYD, BAIC New Energy, Cyrus, and Xiaopeng Motors, while also achieving breakthroughs in the fields of FMCG, finance, and operators. The effect marketing business segment continues to consolidate its “business+sales” advantage, while actively adjusting the business strategy to raise the customer entry threshold, driving annual gross margin of +2.0pcts to 6.33%; 2) From a regional perspective, the company's regional management strategy achieved good results. The South China regional subsidiary achieved breakthroughs and continuous cooperation with customers such as BYD, Dongfeng Nissan, and China Resources 39, and continued to promote customer development in Zhejiang. The internationalization of the company's business continues to advance. The overseas division reached a strategic cooperation agreement with Cheil Worldwide Group to help Chinese brands go overseas; 3) In terms of AI empowerment, the company uses AI tools to enable AI smart marketing platforms, creative writing, delivery, live streaming and other businesses, and achieved 2000+ AI writers in 2023.
Accelerate the development and iteration of AI application products and lay out a digital culture computing power base. 1) On the application side, the company's virtual characters “Jun Ruojin” and “Lan LAN” have been applied in the fields of e-commerce live streaming, IP endorsement, e-sports commentary, etc., and have enabled B-side customers to create virtual human IPs. At the same time, AI lightweight digital human products - digital eyes, and the AI digital human production platform “Star Sound Generation” intelligent digital human platform were launched to provide diverse AI digital human application services. In terms of AI tools, applications such as the AIGC painting tool “Rice Painting”, the Wenshengwen tool “Mi Wen”, the metaverse scene generation tool “Digital Warrior”, and marketing vertical industry copywriting models have been commercialized one after another; 2) On the computing power side, the company established a wholly-owned subsidiary Zhejiang Intelligent Computing (Zhejiang) Technology Co., Ltd., to provide computing power infrastructure and solutions, while strengthening external cooperation with strategic partners such as Lizhijiang Laboratory to further improve the digital culture industry chain layout.
Investment advice: In 2024-2026, we expect the company to achieve revenue of 110.44/115.47/12.138 billion yuan, +2.08%/+5.12%, net profit to mother 2.41/2.96/352 million yuan, +25.42%/22.74%/+18.80% year-on-year, corresponding PE is 27.52X/22.42X/18.87X for the first time, giving it a “buy” rating.
Risk warning: macroeconomic downside risks, policy risks, AI technology progress falls short of expectations.