The company's revenue fell 16.4% in the first half of the year, and net profit was dragged down by investment income. The company's revenue for the first half of 2024 was 1.41 billion yuan, down 16.4% year on year, mainly due to adjustments in social business; by business, online gaming/online social/technical information revenue decreased by 8.2%/77.1%/16.6% respectively; net profit to mother was 0.15 billion yuan, down 76.7% year on year, mainly due to the year-on-year decline of 0.22 billion yuan in investment income and fair value change income of associated enterprises. In the first half of the year, the company's gross margin was 62.8%, down 3.6 percentage points from the previous year; the overall cost ratio increased 0.3 percentage points to 31%. Among them, the sales/management/finance/R&D expenses ratio was 19.8%/5.8%/-0.7%/6.1%, respectively, +1.1/-0.7/-0.2/+0.03 percentage points year on year, respectively, and remained stable overall.

The revenue decline narrowed in the second quarter, and the overall expense ratio fell 5.4 percentage points. Looking at the second quarter alone, the company's revenue was 0.73 billion yuan, down 4.0% year on year, down 22.6 percentage points month on month; net profit to mother was 0.05 billion yuan, down 84.7% year on year; gross margin was 62.1%, down 9.1 percentage points year on year; and expense ratio fell 5.4 percentage points to 39.8%, of which sales/management/finance/R&D expense ratios were 18.2%/11.2%/-1.3%/11.7%, respectively -0.2/-0.3/-1.7 Percentage points are mainly due to a drop in streaming costs for the Winger Network.

Wingman Whipped Eggs is leading the daily growth rate, and Fuchun Cloud, AI applications, and the Zhejiang Big Data Trading Center are progressing steadily.

1) In the digital culture sector, Wingman Network's revenue was 1 billion yuan, down 26.7% year on year, and net interest rate fell 4.3 percentage points year on year to 25.7%, mainly due to boutique operation strategies. More than 13 million new registered users of Whipped Eggs were added in the first half of the year, and the daily activity growth rate is still leading. 2) In the digital technology sector, Fuchunyun IDC's business is steady (revenue of 0.2 billion yuan, up 4.8% year on year, and net interest rate increased 0.1 percentage points to 22.1%), mainly due to the company promoting the construction of an AI smart energy-saving platform and maintaining a high electricity usage rate at the Fuyang Data Center in Hangzhou. In terms of AI applications, Communication Brain and the Big Communication Model and Social Governance Model algorithms developed in the first half of 2024 all passed the National Internet Information Office's filing. 3) In terms of data operation business, the Zhejiang Big Data Trading Center launched the Nanhu Zone, Cultural Tourism Data, and Southeast Zhejiang Industrial Data Zone, completed the main preparations for the Digital Business Alliance in the early stages, and settled in the China Digital Valley exhibition hall. 4) In terms of digital marketing business, Jiutian Interactive has advertising agency qualifications for several leading platforms. Revenue in the first half of 2024 was 0.33 billion yuan, and the operation was steady.

Risk warning: AI application development falls short of expectations; product competition is fierce; regulatory risks.

Investment advice: Continue to be optimistic about the digital economy and the company's industrial chain layout advantages in the AIGC era, and maintain the “superior to the market” rating. The company's game business is steady, and the construction of IDC and data trading centers continues to advance smoothly, and AI applications continue to break through, but in the short term, the company's business structure continues to be adjusted, and investment income is dragging down profits. We lowered our profit forecast. We expect the company's net profit to the mother for 2024-2026 to be 0.54/0.63/0.74 billion (originally 0.74/0.83/0.93 billion); diluted EPS = 0.43/0.5/0.58 yuan. The company's AI applications are implemented rapidly, and the data elements are growing in the long term There is plenty of space to maintain the “better than the market” rating.