The company's performance is temporarily under pressure, and non-operating profit and loss are greatly affected. 2024H1 achieved revenue of 1.413 billion yuan, a year-on-year decrease of 16.36%; net profit to mother of 0.147 billion yuan, a year-on-year decrease of 76.71%; net profit after deducting non-recurring profit and loss of 0.203 billion yuan, a year-on-year decrease of 58.96%. According to “Company Information Disclosure Explanatory Notice No. 1 - Non-Recurring Profit and Loss (2023 Revision)”, the amount of non-recurring profit and loss attributable to shareholders of listed companies for the first half year of 2023 was 344.02 million yuan under the same caliber, an increase of 205.19 million yuan over the original disclosure data of 138.83 million yuan (of which changes in the fair value of Haijian shares affected 211.07 million yuan). According to the above effects, net profit attributable to shareholders of listed companies under the same caliber for the first half year of 2023 after deducting non-recurring profit and loss was 288.36 million yuan. Based on this, net profit attributable to shareholders of listed companies in 2024 after deducting non-recurring profit and loss fell 30% year-on-year.

The company's non-operating profit and loss totaled $55.2971 million, of which the profit and loss from changes in the fair value of transactional financial assets held by the company and its subsidiaries decreased in 2024 compared to the same period of the previous year, mainly due to the company's Pingji Information, Century Huatong shares, and Huashu Media shares held by the company's holding subsidiary Oriental Starry Sky Venture Capital Co., Ltd., which declined in fair value due to fluctuations in the secondary market, which affected the company's net profit to the mother of -56.51 million yuan, a decrease of 0.173 billion yuan from the same period last year.

The digital culture business is growing steadily, and the digital marketing business is contributing new volume. Wingman Network continues to maintain boutique operations. In the first half of the year, Winger Whipped Eggs added more than 13 million new registered users. It continues to maintain its leading position in daily activity, and has good growth rate and development potential. Zhanqi Network undertook Zhejiang FC Football Club's 2024 home sports display and successfully completed the overall promotion work of the 4th Ocean Games. In terms of digital marketing, Jiutian Interactive has built a full digital marketing chain model. The overall business is developing steadily, continuously expanding the scope of cooperation with media and advertisers, and the company and its subsidiaries have obtained commercial advertising agency qualifications from many leading platforms. 2024H1's digital marketing revenue reached 0.335 billion yuan. We believe that as Wingman Network actively promotes game refinement, the company's online game operation business is expected to return to growth. At the same time, the continuous expansion of the digital marketing business is expected to provide new perspectives for the company's business development.

Deepen innovation in the field of digital technology, and progress in big models. The company's two major vertical models have passed the online filing. Among them, the communication model developed by Communication Brain Technology Company became the first media-exclusive big model developed by a media technology company in the country and successfully passed the registration. The social governance big model algorithm of Hangzhou City Brain Co., Ltd. passed the National Internet Information Office's in-depth synthesis service algorithm filing, and became a pioneer of the vertical model in the field of social governance. Fuchun Cloud focuses on the combination of IDC energy saving and large models, and explores the development of AI smart energy saving platforms. Currently, the Hangzhou Fuyang Data Center maintains a high electricity rate, and the Beijing Sijiqing Data Center continues to increase sales efforts. In the future, it will work with relevant partners to jointly build a computing power center according to market conditions and customer computing power service needs.

Profit forecasting and valuation. We expect the company's 2024-2026 EPS to be 0.41 yuan/share, 0.46 yuan/share, and 0.51 yuan/share, respectively. Referring to comparable companies, we believe that although the company's performance was under pressure for a short time, with the gradual stabilization of the transformation of innovative business, the gradual implementation of large model application scenarios, and the development of new businesses such as digital marketing, the company's performance is expected to return to growth. We use PE and PS valuation methods: 1) Refer to comparable companies, and combine the company's main business repair situation and new business format layout. We give the company 20-25 times dynamic PE in 2024, corresponding to a reasonable value range of 8.20-10.25 yuan/share; 2) Referring to comparable companies, we give The company's 4.0-4.5 times dynamic PS in 2024, corresponding to a reasonable value range of 9.12-10.26 yuan/share. Overall, we believe that the company's corresponding reasonable value range is 9.12-10.25 yuan/share, maintaining the company's “superior to the market” rating.

Risk warning. There is a risk of changes in industry policies, the progress of game version distribution falls short of expectations, the risk of industry competition intensifying, and the risk of losing core technical talents.